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SENATE COMMITTEE PRINT 


iXATION OF INCOMES AND REPEAL 
1RTAIN PROVISIONS RELATING TO TAX¬ 
ATION OF INTANGIBLE PERSONAL PROPERTY 
IN THE DISTRICT OF COLUMBIA 


LETTER 

FROM THE 

CHIEF OF THE 
UNITED STATES,BUREAU OF EFFICIENCY, 

4 • . f * 1 

TO THE 



CHAIRMAN OF THE 

COMMITTEE ON THE DISTRICT OF COLUMBIA 
UNITED STATES SENATE 

TRANSMITTING 


A REPORT ON H. R. 5821, AN ACT TO PROVIDE FOR THE 
TAXATION OF INCOMES AND TO REPEAL CERTAIN 
PROVISIONS RELATING TO TAXATION OF IN¬ 
TANGIBLE PERSONAL PROPERTY IN THE 
DISTRICT OF COLUMBIA 



Printed for the use of the Committee on the District of Columbia 


UNITED STATES 

GOVERNMENT PRINTING OFFICE 
WASHINGTON : 1932 

















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COMMITTEE ON THE DISTRICT OF COLUMBIA 

ARTHUR CAPPER, Kansas, Chairman 

WESLEY L. JONES, Washington. WILLIAM H. KING, Utah. 

JOHN L. BLAINE, Wisconsin. CARTER GLASS, Virginia. 

HAMILTON F. KEAN, New Jersey. ROYAL S. COPELAND, New York. 

ROBERT D. CAREY, Wyoming. MILLARD E. TYDINGS, Maryland 

OTIS F. GLENN, Illinois. THOMAS P. GORE, Oklahoma. 

WARREN R. AUSTIN, Vermont. J. HAMILTON LEWIS, Illinois. 

JOHN H. BANKHEAD, Alabama 

W. H. Souders, Clerk 

vl I 

J. M. Ring, Assistant Clerk 


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CONTENTS 



Page 


L Introduction_ 1 

11. Development of income tax_ 2 

III. Substitution of income tax for intangible personal property tax_ 5 

IV. Sources of taxable income in the District of Columbia_ 8 

V. Relation of proposed tax on incomes to present taxes on gross earn¬ 
ings and gross receipts_ 11 

VI. Rate structure_ 24 

.VII. Personal exemptions_ 29 

VIII. Estimated revenues_ 31 

IX. Administration of law_ 37 

X. Changes recommended in proposed law_ 38 

1. Additional definitions_ 38 

2. Deduction for interest paid on mortgage indebtedness on 

homes._ 38 

3. Allowance for estimated losses on bad debts_ 39 

4. Enumeration of items not deductible_ 40 

5. Time limit on losses_ 40 

6. Use of inventories in determining income_ 41 

7. Computation of gains and losses_ 41 

8. Filing of returns according to business year_ 42 

9. Penalty for delinquent returns_ 42 

10. Increased exemption for head of family_ 42 

11. Clarification of persons taxable_ 43 

12. Reciprocity with States___ 44 

13. Allowance for net losses of former years_ 44 

14. Nontaxability of dividends from district corporations_ 45 

15. Exclusion of life insurance from gross income_ 46 

16. Uniformity of period for payment of taxes_ 47 

17. Persons required to file returns_ 47 

18. Need for statute of limitations_ 48 

19. Records of income to be kept_ 48 

20. Specification of appeals procedure_ 48 

21. Adjustment of credit for intangible taxes_ 49 


STATISTICAL TABLES 


Income taxes payable under proposed District law_ 

State income taxes: 

Basis of tax on individuals_ 

Basis of tax on corporations_ 

Intangible assessments and tax, District of Columbia- 

Sources of income, individual Federal income tax returns filed by resi¬ 
dents of District of Columbia___ 

Net income reported on corporation Federal tax returns, District of 

Columbia_ A... - 

Corporations taxed on basis of gross earnings and gross receipts, Dis¬ 
trict of Columbia__ —-- - —- ; — 

Comparative statement of amount of tax on public utilities in District 
of Columbia and amount of tax that would have been derived if real, 

tangible, and intangible property tax rates were applied- 

Class A telephone companies of the United States, operating revenues 

and taxes---- 

Manufacturing gas companies, operating revenues and taxes- 

Electric power and light companies, operating revenues and taxes- 

Principal electric railroads of the United States, operating revenues and 

taxes_— -- 

State income taxes, rates (per cent) on individuals--- 

Comparison of proposed District rates on individuals with average rates 

(per cent) in States--- 

State income taxes, rates on corporations---- 

Comparison of proposed District rates on corporations with average rates 

in States_•_- 

State income tax, personal exemptions--- : — 

Estimated revenues from proposed income tax for District of Columbia. _ 
Ratio of income taxes to total revenues in States- 


2 

4 

4 

6 

8 

10 


13 


17 

19 

20 

21 

22 

25 

27 

28 

28 

30 

32 

36 


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LETTER OF TRANSMITTAL 


United States Bureau of Efficiency, 

Washington, May 23, 1932 . 

Hon. Arthur Capper, 

Chairman Committee on the District of Columbia, 

L'nited States Senate, Washington, D. C. 

My Dear Senator: In compliance with the request contained in 
your letter of January 8, 1932, this bureau has made a study of the 
bill (H. R. 5821) to provide for the taxation of incomes and to repeal 
the provisions of law relating to the taxation of intangible personal 
property in the District of Columbia. 

I am submitting with this letter a report dated May 10, 1932, dis¬ 
cussing the feasibility of the proposed plan. The report recommends 
the adoption of an income tax in lieu of the present intangible tax, 
but suggests that the rates be fixed at 1 per cent on the first $10,000 
of net income above the exemption; 2 per cent on the net income 
between $10,000 and $25,000; 3 per cent on the net income between 
$25,000 and $50,000; and 4 per cent on the net income over $50,000. 
The report also suggests for your consideration certain changes designed 
to make the law more equitable and to facilitate the administration 
of the tax. 

The records of the assessor’s office show that the intangible tax 
will yield approximately $2,547,000 for the year ending June 30, 1932. 
Officials of the District government anticipate a drop in revenues for 
the fiscal year 1933 from this tax (if continued) of between $350,000 
and $400,000. If a change is made in the tax system, it is estimated 
that an income tax at the above-mentioned rates would yield for 
1933 approximately the same revenues as might be expected from 
the intangible tax. Attention is invited to the fact that the net 
result in either case would reflect a decline in revenues which might 
conservatively be placed at $400,000. 

The bureau believes that this deficiency should be made up by 
increased taxes on certain corporations that are now subject to the 
gross earnings or gross receipts taxes but would be exempted under 
the income tax law. This matter will be covered by a separate 
report on bill S. 4483, requested in your letter of April 27, 1932. 

Very truly yours, 

Herbert D. Brown, Chiej. 


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TAXATION OF INCOMES AND REPEAL OF CERTAIN PROVISIONS RELAT¬ 
ING TO THE TAXATION OF INTANGIBLE PERSONAL PROPERTY IN 
THE DISTRICT OF COLUMBIA 


I. INTRODUCTION 

The Select Committee on Fiscal Relations Between the United 
States and the District of Columbia appointed pursuant to House 
Resolution No. 285, Seventy-first Congress, submitted a report on 
December 15, 1931, accompanied by a bill, now H. R. 5821, to 
provide for the taxation of incomes, and to repeal certain provisions 
of law relating to the taxation of intangible personal property in the 
District of Columbia. The bill was passed by the House of Repre¬ 
sentatives on December 16, 1931. 

The proposed tax is to be levied upon net incomes of individuals, 
trusts and estates, certain corporations, joint-stock companies, and 
other associations organized for profit. Corporations which pay 
taxes upon their gross earnings or gross receipts, including public 
utilities, national banks, savings banks, trust companies, and building 
and loan associations are exempted, as are also religious, scientific, 
benevolent, and educational organizations, not conducted for profit. 

The bill, unlike the laws in most States having income taxes, pre¬ 
scribes the same rates for individuals and corporations. The tax is 
determined after deducting from gross income specific statutory 
allowances and exemptions. As used, the term “gross income” 
refers to profits from business, gains on dealings in real or personal 
property, compensation for services, and other forms of wealth 
flowing to a taxpayer that are not returns of capital. From the total 
gross income allowances are deductible for expenses of production, 
taxes, losses, depreciation, charitable contributions, and other 
necessary business expenses. Interest is deductible only if it arises 
from transactions from which taxable income may be realized. In a 
general way the bill follows the Federal law in arriving at net income, 
although there are certain exceptions hereinafter discussed. 

Nonresidents are taxed upon net incomes received from property 
owned and from businesses, trades, professions, or occupations 
carried on in the District. Under .section 1 (f) where a business is 
conducted partly within and partly without the District of Columbia, 
gross income means only that proportion derived from activities in 
the District. In such cases ascertainment of the pro rata part, 
usually a difficult matter, is left for regulations to be prescribed by 
the assessor. 

The personal exemptions in the bill are $1,000 for an unmarried 
person, $2,500 for a married person living with husband or wife, and 
$300 for each minor child under 18 years of age or other dependent 
person actually supported by the taxpayer. If the husband and 
wife make separate returns, or have separate incomes, the exemption 
to each is limited to $1,000. Other untaxed income comprises: 
Dividends from national banks, United States pensions, inheritances, 

1 



2 


TAXATION OF INCOMES, ETC. 


gifts, interest on obligations of the States and Federal Government, 
payments representing a return of insurance premiums, and pay¬ 
ments of death claims (except to partnerships and corporations on 
the lives of officers). 

On the net income determined after deducting allowances and 
exemptions, graduated taxes are to be levied at the rates ol 1 per 
cent of the amount of net income not exceeding $2,000, 1 % per cent of 
the amount of net income in excess of $2,000 but not in excess of 
$5,000, 2 per cent of the amount of net income in excess of $5,000 but 
not in excess of $10,000, 2% per cent of the amount of net income in 
excess of $10,000 but not in excess of $15,000, 3 per cent ol the amount 
of net income in excess of $15,000 but not in excesss ol $20,000, 3)4 per 
cent of the amount of net income in excess of $20,000 but not in 
excess of $30,000, 4 per cent of the amount of net income in excess of 
$30,000 but not in excess of $50,000, and 5 per cent of the amount of 
net income in excess of $50,000. 


Income taxes payable under proposed district law 


Net income 

Rates, 
per cent 

Taxes 

payable 

Net income 

Rates, 
per cent 

Taxes 

payable 

$1,000 

1 

$10 

20 

$100,000_ 

1-5 

$4,090 
6, 590 
9,090 
11, 590 
14,090 
16, 590 
19, 090 
21, 590 
24,090 
29, 090 
34,090 
39, 090 
44,090 
49,090 
74, 090 
99, 090 
149, 090 
249, 090 

$2,000 _ 

1 

$150,000__ 

1-5 

$3,000 

l-l H 
l-i H 
i-m 
1-2 

35 

$200,000__-.- 

1-5 

$4,000 .. 

50 

$250,000_ 

1-5 

$5^000_ 

65 

$300'000_ 

1-5 

$6,000_ 

85 

$350,000__ 

1-5 

$7,000_ 

1-2 

105 

$400.000_ 

1-5 

$8,000_ 

1-2 

125 

$450,000__ 

1-5 

$9,000___ 

1-2 

145 

$500,000-.. __ 

1-5 

$10,000__ 

1-2 

165 

$600,000_ 

1-5 

$15,000_ 

1-2J4 

1-3 

290 

$700,000 ------- 

1-5 

$20,000_ 

440 

$800,000..... 

1-5 

$25,000_ 

1-3 

1-3J4 

1-4 

615 

$900,000_ 

1-5 

$30,000_ 

790 

$1,000,000_ 

1-5 

$35,000___ 

990 

$1,500,000 .. 

1-5 

$40,000____ 

1-4 

1,190 

1, 390 

1, 590 

2,840 

$2,000'000 

1-5 

$45,000.. 

1-4 

$3,000,000 

1-5 

$50,000.__ 

1-4 

$5,000,000 

1-5 

$75,000_ 

1-5 



Note.—T he taxable net income as used in this table is in excess of the personal exemption. 


II. DEVELOPMENT OF INCOME TAX 

Income taxes in various forms have been employed for 300 years— 
perhaps longer. In the Middle Ages the tallage duty, though nomi¬ 
nally a tax on demesne lands of the Crown, was usually determined 
by considerations of taxpaying ability, in that tradesmen, farmers, 
and others were listed according to their profits. However, up to 
the end of the eighteenth century the income tax was unimportant 
as to the amount of revenues produced. At that time France was 
the only nation realizing substantial receipts from this source. Of 
the other European countries, England and Prussia were among the 
first to introduce the tax as an integral part of their fiscal systems. 
In 1798 England adopted this method for raising money to carry on 
a war with France. Thereafter income tax laws were enacted and 
repealed several times, but since 1848 they have been continuously 
in use. The Prussian tax dates back to 1811 and like that in England 
has also undergone many changes. Spain, Italy, Belgium, Austria, 
Norway, Sweden—in fact almost every important European country— 
have adopted income taxes for their national or local governments. 
At present this form oi taxation is in use in more than 50 countries. 




















































TAXATION OF INCOMES, ETC. 


3 


Early in the nineteenth century some agitation arose in the United 
States for a national income tax, but not until 1862, as a result of 
the demands of the Civil War, was a tax levied, and then only on 
incomes ol individuals. Defects of administration caused the law 
to be repealed 10 years later. In 1894 the tax was revived and made 
applicable to individuals and corporations, but the next year the act 
was declared unconstitutional by the United States Supreme Court 
in the case of Pollock v. Farmers Loan & Trust Co. (158 U. S. 601), 
on the ground that the tax was direct and must be apportioned to 
the States according to representation. In 1909, the Payne-Aldrich 
law was passed placing an excise tax on corporation incomes in excess 
of $5,000. About the same time Congress, believing the income tax 
desirable, proposed the sixteenth amendment, giving the Federal 
Government power to levy and collect taxes on incomes, without 
apportionment among the States. The amendment was adopted in 
1913. That same year a new Federal income tax law was passed, 
which was followed successively by the revenue acts of 1916, 1917, 
1918, 1921, 1924, 1926, and 1928. Each of these applied both to 
individuals and corporations. The revenue acts of 1917 and 1918 
greatly increased the rates to finance expenses growing out of the 
World War. Beginning with the act of 1921 the succeeding acts 
effected reductions in rates, together with increased exemptions. Due 
to the exigencies of the present situation, the revenue bill for 1932 
now before Congress proposes to increase the rates and lower ex¬ 
emptions. Since the adoption of the sixteenth amendment the 
importance of the Federal income tax has greatly increased, so that 
it is now firmly entrenched in our national fiscal system. 

With respect to the States, although this form of tax goes back to 
the early days in the Colonies, the first noteworthy movement along 
this line started in 1840. Massachusetts was then the only State 
that had an income tax. During the next 10 years Pennsylvania, 
Maryland, Virginia, Alabama, Florida, and North Carolina passed 
similar laws. Most of these laws became ineffectual because of poor 
administration and evasion. This led to then- repeal or nonenforce¬ 
ment. For 40 years following the Civil War income taxes made 
little gain. At the beginning of this century only five States— 
Massachusetts, North Carolina, South Carolina, Virginia, and Okla¬ 
homa—used the tax, and even in some of these its abandonment was 
considered. Within the next 10 years a viewpoint favorable to the 
income tax developed. The reasons leading to the change of atti¬ 
tude, as listed by the National Industrial Conference Board in State 
Income Taxes, Volume II, page 171, were: 

(1) To tap a new source of revenue; (2) to equalize the burden as between a 
property-owning class and a nonproperty-owning class possessing taxpaying 
ability; (3) to introduce into the tax system a more accurate method of ascer¬ 
taining ability to pay taxes; (4) to reach intangible property which could not 
be successfully taxed under existing property tax laws; (5) to introduce conveni¬ 
ently a progressive element of taxation into rates of the tax system; (6) to tax 
national banks in compliance with section 5219 of the Revised Statutes of the 
United States; and (7) to reach the income of property which could not be taxed 
otherwise because impliedly prohibited by the Federal Constitution or expressly 
forbidden by the Federal law. 

In 1911 Wisconsin passed a carefully drafted law designed to cor¬ 
rect difficulties experienced by other States, particularly in respect 
to administration. The law proved successful. Undoubtedly the 


4 


TAXATION OF INCOMES, ETC. 


Federal income tax, which was being introduced about the same 
time, and which required accurate methods of accounting for and 
reporting of income, made the task of State administration easier. 
Other States gradually followed, and in the past few years the move¬ 
ment has had a significant development, receiving added impetus by 
the increased costs of government. To-day income tax laws are in 
effect in nearly half of the States. At this point it may be oi interest 
to consider the basis on which these taxes are levied. 


State income taxes—Basis of tax on individuals 


Arkansas. 

Delaware 
Georgia.. 
Idaho_ 

Illinois... 


State 


Residents 


Nonresidents 


Entire net income 

_do.. 

_do_ 

....do_ 

_do.... 


Net income from services, property, or business 
in State. 

Not taxed. 

Net income from property or business in State. 
Net income from services, property, or business in 
State. 

Net income from property, business, trade, pro¬ 
fession, or occupation in State. 


Massachusetts 

Mississippi.... 


do 

do 


Missouri_ 

New Hampshire 
New York_ 


_do... 

Interest and dividends 
Entire net income- 


Not taxed. 

Net income from property, business, or occupa¬ 
tion in State. 

Net income from sources within State. 

Not taxed. 

Net income from services, property, or business 


North Carolina 
North Dakota. 


do 

do 


Oklahoma_ 

Oregon_ 

South Carolina 

Tennessee. 

Utah..... 

Vermont.. 

Virginia. 


_do_ 

i Net income from sources 
within State. 

Entire net income-- 

Interest and dividends. 

Entire net income.. 

-do..-- 

-do.. 


in State. 

Net income earned within State. 

Net income from sources within or attributable to 
the State. 

Net income from property or business in State. 
Net income from sources within State. 

Do. 

Not taxed. 

Do. 

Do. 

Net income from business, trade, or profession in 


Wisconsin_ 

Proposed for District 


do 

do 


State. 

Net income from property or business in State. 
Net income from property, business, trade, pro' 
fession, or occupation in District. 


State income taxes—Basis of tax on corporations 


State 

Domestic 

Foreign 

Arkansas.. 

Entire net income. 

Net income from sources within State. 
Do. 

Do. 

Do. 

Net income from sources within or 
allocable to State. 

Net income from sources within State. 
Do. 

Do. 

Do. 

Do. 

Do. 

Do. 

Do. 

Do. 

Do. 

Do. 

Do. 

Net income from sources within or 
allocable to State. 

Net income from sources within State. 
Do. 

Net income from property, business, 
trade, profession, or occupation in 
District. 

California.. 

Net income from sources within State. 
_do. 

Connecticut.... 

Georgia__ 

_do. ... . 

Idaho... .. 

Net income from sources within or 
allocable to State. 

Entire net income____ 

Massachusetts. 

Mississippi... 

_do. _ _ 

Missouri___ 

Net income from sources within State. 
_do.. ... 

Montana... 

New York.... 

.. ..do. .... . 

North Carolina .. 

Entire net income.. 

North Dakota_ ... 

Net income from sources within State. 
_do. .. 

Oklahoma. .. 

Oregon_ . . 

_do. .. 

South Carolina.__ 

_do... 

Tennessee... 

_do.. 

Utah_ 


Vermont. 

Net income from sources within or 
allocable to State. 

Net income from sources within State. 
_do.. _ 

Virginia.. 

Wisconsin.. 

Proposed for District.... 

Entire net income. 































































































TAXATION OF INCOMES, ETC. 5 

III. SUBSTITUTION OF INCOME TAX FOR INTANGIBLE PERSONAL 

PROPERTY TAX 

The bill, in levying an income tax, would repeal the law providing 
lor the present millage tax on intangible property. Acts of Septem¬ 
ber 1 , 1916 (39 Stab 717); March 3, 1917 (39 Stat. 1046); June 29, 
1922 (42 Stat. 669); and July 3, 1926 (44 Stat. 833). During the 
nineteenth century many States, to adjust the inequalities in the tax 
burdens, enacted laws classifying property and greatly extended the 
taxation of personalty. The earlier laws applied mostly to tangibles, 
but as the classification developed intangibles were also included. 
With the prospect of a new source of revenue, taxation of personal 
property became widespread. In its application the personal tax 
produces a fairly stable amount of revenue, a characteristic which 
has made it an important part of the established structure of taxation. 

The tangible property tax, where rates have been reasonable, has 
met with only slight opposition, but the intangible property tax has 
been severely criticized almost from the beginning, and because of 
well-founded objections is slowly being replaced. It has been op¬ 
posed as being in effect a type of double taxation on the ground that 
in an economic sense bonds, stocks and like evidences in property 
rights are not wealth but merely represent equities in tangible or real 
property already subjected to taxation. Most of the faults of the 
real property tax are present in the intangible tax—and in a more 
aggravated form. Too often the yield is lost sight of in assessments. 
Again ownership is not an accurate criterion for determining tax- 
paying ability, especially if taken without regard to any indebtedness 
incurred to purchase or carry the property. But the most serious 
objection is the flagrant evasion of the tax. In the majority of States 
appraisement is made by the individual owner. While intangible 
property can be easily concealed, the legislatures, nevertheless, have 
been hesitant to give assessors broad investigational powers. The 
ease with which understatements can be made, and the recognized 
difficulty in their detection, encourage a general disregard of the law. 

A common method of reaching intangibles is to make arbitrary 
levies against persons reporting tangible property, a procedure 
defective at best, as it fails to disclose the tax dodger holding only 
intangibles. To minimize evasion, some States purposely make the 
rates relatively low in the hope that through additional property 
reported the revenues will in the end be augmented. Though an 
improvement, the plan is not an entire solution, since the listing of 
property necessarily remains with the taxpayer. 

No satisfactory means are available for determining the extent of 
the evasion of intangible property tax in the District of Columbia. 
A comparative statement of taxes and assessments in 23 representa¬ 
tive cities (ranging in population from 252,981 to 900,429), found on 
page 44 of the report of the select committee, shows that Washington 
has the second highest assessment valuation of personal property, 
being exceeded only by Baltimore, a city nearly twice its size. On 
intangible property Washington has the highest assessment valuation. 
These figures lead to the belief that the District of Columbia has, 
possibly, a more effective administration of the law than any of the 
other cities in the group. But this does not mean that a large pro¬ 
portion of the intangibles are taxed in the District. 


6 


TAXATION OF INCOMES, ETC. 


As the aggregate value of personal property far exceeds that of 
real property, one might expect, taking into account the exemptions 
allowed in the District personal tax laws, which in the aggregate are 
relatively small, that the valuation of personality would approach 
that of realty, which is about $1,200,000,000; yet the assessed valua¬ 
tion of local personal property amounted to only $650,000,000. 
Much of the difference must have been made up of unreported intan¬ 
gible property, as it is much more difficult to locate for assessment 
purposes, and is more easily concealed. The value of intangibles in 
the District may be roughly checked through the Federal returns. 
Income from dividends and interest reported in individual returns 
by taxpayers in the District, exclusive of exempt interest on Liberty 
bonds and State obligations, etc., amounts to about $50,000,000 a 
year. On an assumed average earning of 5 per cent the investment 
would be a billion dollars, yet the intangible property assessment is 
ittle more than half this amount. 

Intangible assessments and tax, District of Columbia 


Year 

Assessed value 

Rate per 
$1,000 

Tax 

Year 

Assessed value 

Rate per 
$1,000 

Tax 

1918_ 

$296.926, 463. 00 
293. 506. 446. 00 
323, 031, 283. 00 
327, 282, 913. 00 
335, 749, 820. 00 
365, 079, 090. 00 
379, 801, 290. 00 

$3.00 
3. 00 
3.00 
3.00 
3.00 
5.00 
5.00 

$890, 779. 39 
880, 519. 34 
969, 093. 85 
971. 848. 74 

1, 007, 249. 46 

1,825, 395. 45 

1, 899, 006. 45 

1925_ 

$410,106,188. 00 
437, 085, 808. 00 
472, 585, 686. 00 
495, 908, 396. 00 
524, 565, 056. 00 
545, 188, 144. 00 
548, 597, 274. 00 

$5.00 
5.00 
5. 00 
5.00 
5. 00 
5.00 
5.00 

$2, 050, 530. 94 
2,185, 429. 04 
2, 362, 984. 43 
2,479, 541.98 
2, 622, 825. 28 
2,'725, 940. 72 
2, 742, 986. 37 

1919_ 

1926_ 

1920_ 

1927_ 

1921 _ 

1922 _ 

1928 _ 

1929 _ 

1923_ 

1930 ... 

1924_ 

1931_ 




In the District of Columbia each individual liable for taxation of 
personal property, whether tangible or intangible, is required to file 
a sworn return with the assessor, on the basis of which the board of 
personal tax appraisers determines the assessment. If a person 
neglects or refuses to file a return, the assessor may compel him to 
file one. If a return is believed incorrect, the board is empowered to 
make an assessment from the best information available, and to add 
a penalty of 20 per cent where a return is not filed on time. In 1927 
this bureau, in connection with other studies on the District govern¬ 
ment, ascertained from the assessor that approximately 20,000 per¬ 
sons liable for tax in 1926 failed to file returns. Two outstanding 
cases were cited of residents who failed to file returns but paid with¬ 
out protest the tax arbitrarily assessed each vear. 

CASE A 


Year ended June 30— 

Arbitrary assessments 
(including penalty) 

Tax 

Tangible 

Intangible 

1922.... 

s»79 non 

*Cifin nnn 

u.1 Q^n An 

1924__ 

7k nnn 

•PIOU, uuu 
/ittn nnn 

»pl, oOU. 4U 

3, 336. 00 

k 909 nn 

1925_ 

7k nnn 

*ioU, UUU 
kAn nnn 

1926_ 

78 nnn 

o<±u, UUU 
i* oan nnn 

o, zyz. uu 
7, 326. 00 

1927_ 

78 nnn 

I, ^UU, UUU 
o Ann nnn 



4UU, UUU 

16 f 4U4. UU 


CASE B 


1918_ 

Co Ann 



1919_ 

'PZ f A{JU 

9 Ann 

•PZ4U, UUU 

<p/5o. UU 
1, 116.00 

1920_ 

*tuu 

9 /inn 

oOU, UUU 

1922.. . 

4UU 

9 /inn 

1 , ZUU, UUU 

o, 646. oO 
7, 243. 68 


A 4UU 

UUU 






























































TAXATION OF INCOMES, ETC. 


7 


In case A the taxpayer had consented to annual increases in assess¬ 
ments on intangible personal property from $180,000 in 1922 to 
$2,400,000 in 1927. His failure to protest against the 1927 assess¬ 
ment might indicate that even the amount fixed that year inade¬ 
quately represented the fair value of his property. In case B the 
taxpayer permitted assessments on intangible property to be arbi¬ 
trarily increased from $240,000 in 1918 to $2,400,000 in 1922. He 
filed a return the next year, probably fearing further increases. 
While these two cases are exceptional, they indicate the possibilities 
of evasion of the intangible tax. 

Since 1929 local conditions have been improved by the enactment 
of a law recommended by the Bureau of Efficiency which provides 
that if any person neglects or refuses to file a return of personal 
property and the assessor certifies that in his opinion the best infor¬ 
mation obtainable does not afford a satisfactory basis for assessment, 
the board of commissioners may petition the Supreme Court of the 
District of Columbia for a mandamus against such person to compel 
the filing of a sworn return. (Act of February 8, 1929, 45 Stat. 
1227.) The auditor for the District of Columbia in commenting on 
the finances for 1931, states that notwithstanding the market slump 
the levy on intangibles increased in 1931 because the commissioners 
were empowered to initiate mandamus proceedings against taxable 
persons who refused to file returns satisfactory to the assessor, and 
that during the past year it was unnecessary to take legal action 
after a number of persons were advised of the provision of the law. 
(Finances of the District of Columbia for the fiscal year 1931, p. 3.) 

It is of interest to note in the table of intangible assessments shown 
in this section that collections have increased each year for the past 
10 years, up to and including 1931. 

But more important than illegal evasion is the legal avoidance of 
taxes. From a social viewpoint all individuals should share in the 
support of the Government in proportion to their respective abilities. 
In the District the opportunity exists for many persons with sub¬ 
stantial incomes from professions or from investments in tax-exempt 
local stocks or Government bonds to escape virtually all direct 
taxes. As the bill, if enacted, will effect a more equitable distribution 
of the tax burden between property owners and nonproperty owners 
having ability to pay taxes, it is the opinion of this bureau that a 
decided improvement will be made in the District taxing system by 
the substitution of an income tax for the present tax on intangible 
property. The bureau is further influenced in its view by the general 
situation on property taxes. Heretofore the money raised in the 
District of Columbia to meet expenses has been obtained almost 
entirely from taxes on real and personal property. Last year the 
cash revenues of the District were $30,416,539, exclusive of the 
gasoline tax, or $32,157,461 if the gasoline tax is included. 01 this 
amount general property taxes produced $27,286,319. These signifi¬ 
cant figures show an abnormal situation in which real and personal 
propertv are bearing a disproportionate part of the cost of the 
municipal government. Scarcely a tax authority can be found to 
uphold the property tax as the chief source of direct contribution 
and yet in the District it constitutes 85 per cent of the total revenues. 


8 TAXATION OF INCOMES, ETC. 

IV. SOURCES OF TAXABLE INCOME IN THE DISTRICT OF COLUMBIA 

Income taxed under the Federal revenue act falls roughly into two 
classes: (1) Individual, including trusts and estates, and (2) corpora¬ 
tion, including that of joint-stock companies and other associations 
organized for profit. 

An analysis of the sources of individual incomes reported in Federal 
returns filed by residents of the District of Columbia for the 5-year 
period 1925 to 1929 is shown below. 


Sources of income—individual Federal income-tax returns filed by residents of the 

District of Columbia 



1925 

1926 

1927 

1928 

1929 1 

Average 

SOURCES OF INCOME 

Wages and salaries_ 

Business__ _ 

Partnership_ 

Profit from sale of real es¬ 
tate, stocks, bonds, etc... 

Capital net gain_ 

Rents and royalties_ 

Interest on Government 
obligations (not exempt). 
Dividends on stock of do¬ 
mestic corporations_ 

Fiduciary i ncome..—. - 

Interest and other income.- 

Total income_ 

DEDUCTIONS FROM INCOME 

Net loss from sale of real es¬ 
tate, stocks, bonds, etc... 

Contributions__ 

All other deductions_ 

Total deductions_ 

Net income. 

$103,617, 349 
32,988, 296 
9,669, 700 

14,266,002 
6,190,320 
15,244,105 

225,284 

24,104,182 
4,727,318 
18,058, 507 

$107,733, 319 
27, 116, 639 
9,433, 591 

10,937, 080 
5,484,851 
12,059,893 

411, 537 

29,474, 579 
5, 366, 588 
20,385,780 

$101,094,956 
27, 2.56,010 
8,262,051 

13,365, 035 
8,594, 762 
13, 207,373 

470,060 

32, 208,341 
5, 090, 804 
24,498,090 

$116, 291,319 
28,498, 573 
9, 504, 679 

21, 320, 732 
9,651,578 
11,630,163 

494, 872 

30,484,026 
5,466,852 
24, 324,136 

$139, 577, 642 
27, 945,657 
9,470, 440 

16,105,846 
13, 200, 366 
10, 527,941 

483, 586 

34,066, 299 
5,806, 638 
20,496, 592 

$113, 662,917.00 
28, 761,035.00 
9,268, 092. 20 

15,198,939. 00 
8,624, 375. 40 
12, 533, 895. 00 

417,067.80 

30, 067, 485. 40 
5, 291,640.00 
21, 552,621. 00 

229,091,063 

228,403,857 

234,047,482 

257, 666,930 

277,681,007 245, 378, 067.80 

( 2 ) 

3,432, 094 
25, 305,270 

599,472 
3,593, 460 
26,155,157 

1,895,706 
3,485,987 
29,727,747 

918,299 
4,002, 065 
25,125,960 

4,898, 500 
4, 274,035 
26,225,774 

1, 662,395. 40 
3,757, 528. 20 
26,507,981.60 

28, 737,364 

30, 348,089 

35,109,440 

30, 046, 324 

35,398, 309 31,927,905. 20 

200, 353, 699 

198, 055,768 

198,938, 042 

227,620,606 

242, 282,698 213,450,162. 60 

I 


1 Calendar year 1929 latest complete statistics published by bureau of internal revenue. 

2 Not reported separately for 1925. 


The statistics of the Federal Government are based on the tax¬ 
payers’ returns as filed, unaudited except for a preliminary examina¬ 
tion to insure that the forms are filled out and properly executed. 
The income reported in the tables does not always represent precisely 
the amount on which settlement of the tax is finally made, for the 
reason that tax delinquencies or overpayments may be discovered 
after the figures have been taken from the original returns for the 
statistics of income. While the table is prepared on the basis of 
Federal tax returns filed in the District, the sources of income under 
the proposed bill will be fairly analogous, as the bill prescribes sub¬ 
stantially the same procedure for determining net income. 

The gross income reported by residents of the District for Federal 
tax purposes increased from $229,000,000 in 1925 to $277,000,000 in 
1929, the average being $245,000,000. Nearly one-half of this 
amount was realized from the item of salaries and wages, in large 
part paid by the Federal Government. The next item of income, 
about 20 per cent, represented dividends and interest. Earnings 
from individual and partnership businesses accounted for 15 per cent; 
and profits from sales of capital assets, rents, royalties, and all other 











































9 


TAXATION OF INCOMES, ETC. 

income made up the remaining 15 per cent. From the gross income 
there were deducted losses, interest, taxes, contributions, and other 
allowances totaling $32,000,000, leaving an average net income 
reported for the period of $213,000,000. 

The incomes in the District for the next two or three years are 
more or less a matter of conjecture. Because of the lower exemp¬ 
tions in the District bill, additional taxes will be collected on incomes 
that are not reached now by the Federal Government, namely, those 
between $2,500 and $3,500 in the case of married persons, and between 
$1,000 and $1,500 for single persons. The taxable income of these 
two groups comprising between 10,000 and 15,000 persons, many of 
whom are Government workers, would be from $500 to $1,000 per 
return, the difference between the District exemption and the Federal 
exemption. Though small, this would provide some additional reve¬ 
nue. On the other hand, the drop in earnings because of the present 
business depression, particularly in the case of wealthy taxpayers, 
will decrease the net incomes subject to the higher tax rates, thereby 
substantially reducing the revenues until general conditions improve. 
A discussion of the effect on tax collections is taken up under the 
section of this report dealing with estimated revenues. 

For corporations, the available statistics compiled by the Bureau 
of Internal Revenue show only the nature of the business in which 
the corporation is engaged. As these give an idea of the sources of 
income, a tabulation is presented on that basis for the five years 1925 
to 1929. 


Net income reported on corporation Federal tax returns, District of Columbia 


10 


TAXATION OF INCOMES, ETC. 


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11 


TAXATION OF INCOMES, ETC. 

As contrasted with the incomes of individuals which showed a 
marked increase during the period, incomes of corporations decreased 
$11,500,000, of which $7,500,000 was attributable to a decline in the 
earnings of railroads and public utilities, and the other $4,000,000 
mostly to construction companies, hotels, trading corporations, and 
printing and publishing companies. A continuation of the depression 
will tend to reduce further the incomes of corporations so that, for 
the net year or so, their taxes would constitute only a small part of 
the revenues under the proposed bill. 

Because of the noncommercial character of Washington, corpora¬ 
tions are less important here than in other cities of the same size in 
the United States. The total taxable income of all corporations in 
the District during the period 1925-1929 averaged $59,000,000 a year. 
Of this approximately 60 per cent was received by railroads and 
public utilities, 15 per cent by banks and financial institutions, 12 
per cent by trading businesses, 7 per cent by manufacturers, and the 
remaining 6 per cent, by all others. Of particular significance is the 
fact that a large part of the net income of the local corporations 
would not be subject to the District income tax, as such incomes are 
received by public utilities and financial institutions exempted under 
section 22, which reads as follows: 

All corporations within the District of Columbia which pay a tax upon their 
gross earnings or receipts shall be exempt from the provisions of this act. 

V. RELATION OF PROPOSED TAX ON INCOMES TO PRESENT TAXES 
ON GROSS EARNINGS AND GROSS RECEIPTS 

A study of any tax involves the fundamental consideration: Who 
shall pay? As proposed in the pending bill, the tax will fall, upon 
individuals, estates, trusts, and certain corporations. By section 22 
just quoted, corporations now paying taxes on gross earnings or 
gross receipts will, be exempted. Although these organizations are 
but a small percentage of the number of businesses in the District, 
their combined total income amounts to over one-third of the 
$59,000,000 local corporate income reported for Federal taxation 
during the period 1925 to 1929. More than another third, earned 
by railroads, would be taxable only as to a very small part of the 
income, representing the portion derived from business transacted 
in the District. Excluding these two groups, actually less than 
$15,000,000 is left to tax. Before exempting any particular businesses 
from the operation of the proposed law, manifestly the first step is 
to determine whether they now pay a fair share of the cost of gov¬ 
ernment. The consideration becomes the more important as three 
other revenue measures for the District are before Congress: H. R. 
5822 to provide an estate tax, H. R. 5823 to provide a motor fuel 
tax, and H. R. 5824 to provide, among other things, registration fees 
for motor vehicles. At the request of the Senate Committee on the 
District of Columbia, studies were made by this bureau on the bills, 
arid reports were rendered on March 14 and 15, 1932. 

121418—32-2 


12 


TAXATION OF INCOMES, ETC. 


The estimated additional revenues from the measures (other than 
the income tax) under the plan of the Select Committee and the 
plan of the bureau follow: 


Tax 

Select 

committee 

plan 

Bureau 

plan 


$750,000 

1, 650, 000 

2, 900, 000 

$750, 000 
1,650, 000 
467. 000 

lVTntnr fuel fnririitinnal 9-e.ent 1 aw') _ _ _ _ _ _ 

Motor-vehicle registration_ _____ 

Total . _ _ _ 

5, 300, 000 

126, 000 
440, 000 

4, 734, 000 

2,867, 000 

126,000 

Less: 

Present rAgist.ra.tinn $1 fee - _ _ _ _ _ - — 

PrASPnt. np.rsrmal nrnnprt.v t.9Y on antOTnohilfiS __ _ _ _ 

Not addition - _ -- -_ __ _ — 

2, 741, 000 



From the foregoing it will be noted that there is a difference of 
$1,993,000 in the two plans. Whatever plan be adopted, these 
measures contemplate a substantial increase in taxes in the District 
of Columbia, and their consideration requires care to see that the 
burden is distributed equitably among the several classes. 

The corporations exempt under the bill are now taxed under the 
following provisions of law: 

Each national bank as the trustee for its stockholders, through its president 
or cashier, and all other incorporated banks, and trust companies, in the District 
of Columbia, through their presidents or cashiers, and all gas, electric-lighting, 
and telephone companies, through their proper officers, shall make affidavit to 
the board of personal-tax appraisers on or before the 1st day of August each 
year as to the amount of its or their gross earnings for the preceding year ending 
the 30th day of June, and shall pay to the collector of taxes of the District of 
Columbia per annum on such gross earnings as follows: Each national bank, 
and all other incorporated banks, and trust companies, respectively, 6 per centum; 
each gas company, 5 per centum; each electric lighting, and telephone company, 
4 per centum. And in addition thereto the real estate oxtfned by each national 
or other incorporated bank, and each trust, gas, electric lighting and telephone 
company in the District of Columbia shall be taxed as other real estate in said 
District: Provided , That street railroad companies shall continue to pay the 
four per centum per annum on their gross receipts and other taxes as provided 
by existing law. (Par. 5, act of July 1, 1902, 32 Stat. 619.) 

That part of the proviso in paragraph five, section 6, relating to street rail¬ 
roads “shall be construed to mean that all street railroad companies shall pay 
four per centum per annum on their gross receipts within the District of Columbia 
and other taxes as provided by existing law.” 

******* 

All companies, incorporated or otherwise, who guarantee the fidelity of any 
individual or individuals, such as bonding companies, and all companies who 
furnish abstracts of titles to real property, or who insure real estate titles, shall 
pay to the collector of taxes of the District of Columbia l}i per centum of 
their gross receipts in the District of Columbia. 

******* 

That hereafter, beginning with the fiscal year commencing July 1, 1904, 
incorporated savings banks paying interest to their depositors shall, through 
their president or cashier, make report under oath to the board of personal tax 
appraisers on or before the 1st day of August in each year as to the amount of 
their gross earnings, less the amount paid as interest to their depositors for the 
preceding year ending June 30, and shall pay thereon to the collector of taxes 
of the District of Columbia 4 per centum per annum. 

******* 
Building associations in the District of Columbia shall pay to the collector of 
taxes of the District of Columbia 2 per centum per annum on their entire gross 
earnings for the preceding year ending June 30. (Sec. 2, act of April 28, 1904, 
33 Stat. 563.) 
























TAXATION OF INCOMES, ETC. 


13 


Every insurance company and association doing business in the District of 
Columbia * * * except mutual fire insurance companies, shall pay to the 

collector of taxes before March 1 of each year a sum equal to 1)4 per centum of 
said premium receipts of the last preceding calendar year, in lieu of all other 
taxes, except taxes upon real estate and any license fees * * *. (Sec. 650, 

act of March 3, 1901, 31 Stat. 1291.) 

Every corporation, joint-stock company, or association not exempt herein, 
transacting business in the District of Columbia, which collects premiums, dues 
or assessments from its members or from holders of its certificates or policies, and 
which provides for the payment of indemnity on account of sickness or accident, 
or a benefit in case of death, shall be known as “health, accident, and life insurance 
companies or associations.” * * * Every such company or association shall 

pay to the collector of taxes for the District of Columbia a sum of money, as tax, 
equal to 1 per centum of all moneys received from members of policy or certi¬ 
ficate holders within the District of Columbia. (Sec. 653, act of August 15, 1911, 
37 Stat. 17.) 


Corporations taxed on basis of gross earnings and gross receipts, District of Columbia 


Corporations 

Statute ref¬ 
erence 

Basis of tax 

Rate 

Group 1. Financial institutions: 

National banks and other incorporated 
banks. 

Trust companies_ __ _ 

32 Stat. 619 

Gross earnings... 

Per cent 

6 

-do - . 

__ -do__ . _ 

6 

Incorporated savings banks_ _ . 

33 Stat. 564-_ 

Gross earnings, less interest 
paid to depositors. 

Gross earnings. .. .. 

4 

Buildine and loan associations. 

. .do_ _ 

2 

Life, health, and accident insurance com¬ 
panies. 

Insurance companies (except mutual fire 
insurance companies and companies trans¬ 
acting life, health, or accident insurance). 

Title insurance companies 

37 Stat. 16- 

Net premium receipts_ 

1 

31 Stat. 1291 

_do_ 

1H 

32 Stat. 619- 

Gross receipts. — __ __ .. 

m 

Bonding companies 

33 Stat. 564.- 

. ...do__ _ . _ 

in 

Group 2. Public utilities: 

Blpotric-light companies 

32 Stat. 619- 

Gross earnings_ __ .. 

4 

Telephone companies 

_ .do 

.do_ .. . .. 

4 

Gas companies 

- _do_ — 

... .do_ _ . _ . .. 

5 

Street-railway companies_ . . -_ 

33 Stat. 564_. 

Gross receipts within District. 

4 


Note. —These taxes are in lieu of tangible and intangible personal property taxes, but not real property 
taxes. In addition thereto, the real estate owned by these corporations is taxed as other real estate in the 
District. 


These corporations fall into two groups—financial institutions and 
public utilities. 

Financial institutions .—National banks and trust companies pay a 
relatively high tax, 6 per cent on their gross earnings, compared with 
the average in the States. Statistics on bank expenses compiled by 
H. N. Stronck & Co., bank consultants, show that for the 10-vear 
period, 1921 to 1930, the total taxes paid by all banks in the District 
of Columbia were 8.87 per cent of their gross earnings, against 5.90 
per cent for the entire United States. Last year the Federal Reserve 
Bank of Richmond reported that member banks of the filth Federal 
reserve district paid in taxes of all kinds about $5.60 on every $100 
gross income, whereas in the District in some cases bank taxes exceeded 
$12. A survey of income tax laws made by the committee on taxation 
of the American Bankers Association, published in September, 1931, 
shows that of 20 States having corporation income taxes, 10 tax all 
banks, 3 tax only State banks, and 7 exempt all banks. 

Incorporated savings banks pay a tax of 4 per cent on gross earnings 
after deducting interest on deposits. Their working capital is made 
up largely of savings accounts on which interest at 3 per cent is paid. 
Were not the deduction for interest allowed, the tax would be bur- 




































14 


TAXATION OF INCOMES, ETC. 


densome, and in some cases prohibitive. Owing to the narrow margin 
of profit any increase in tax would ultimately lead to the reduction of 
interest paid to depositors, or would weaken the banks’ resources, 
either result being undesirable. Some of the banks less favorably 
situated might be forced out of business. Although the tax paid by 
savings banks is not as high as that on national banks and trust 
companies, nevertheless it averages about 7 per cent of their gross 
earnings—a figure higher than the average tax paid by all banks in 
the country. The majority of States having income taxes exempt 
savings banks. 

The total taxes paid by banks in the District of Columbia for the 
fiscal year 1931, exclusive of real-estate taxes, amounted to $859,922.14 

Building and loan associations have commonly come to be regarded 
as public benefactors. Primarily their purpose is to aid persons who 
otherwise would be unable to purchase homes. They also furnish a 
means for depositors of small amounts to earn a fair interest return 
on secured investments. Where a rate of 5 per cent is paid on de¬ 
posits, and 6 per cent charged as interest on loans, but 1 per cent 
remains for a margin on which business is done. Accordingly a 2 per 
cent tax on mortgage interest received, without the privilege of de¬ 
ducting interest paid, amounts to 12 per cent of the net interest earned. 
The policy of the Federal Government and most of the States is to 
exempt this class of establishments from income taxes, if substantially 
all the business is confined to making loans to members. Taxes in 
the District, exclusive of real property taxes, assessed against building 
and loan associations for 1931 amounted to $79,264.06. 

There may be some question whether section 22 of the bill, exempt¬ 
ing corporations taxed on gross earnings or gross receipts, was in¬ 
tended to include insurance companies, which are taxed on premium 
receipts. Life, health, and accident insurance companies in the 
District of Columbia pay a tax of 1 per cent of their net premiums. 
Other insurance companies pay 1 % per cent. Some form of premium 
tax is found in most States, although there are many differences in 
rates, and in their application to particular classes of companies. 
Connecticut, Illinois, and Nebraska do not levy any premium tax 
on domestic companies. New Jersey follows this practice with respect 
only to domestic life-insurance companies. New York, Maryland, 
and Virginia tax part of their insurance companies at rates as low as 
1 per cent. Alabama, Delaware, Georgia, Maine, and Utah levy 
taxes of 1 V 2 per cent, which is the same rate as that in the District on 
other than life, health, and accident companies. The average is 
about 2 per cent, the rate in effect in 17 States. Onlv three States 
tax as high as 3 per cent—Indiana, Michigan, and Texas. Taxes 
collected from insurance companies in the District for 1931 amounted 
to $304,029.35. 

Bonding and surety companies pay at the rate of V/ 2 per cent on 
their gross receipts. From a revenue standpoint, the collections 
from these companies are relatively unimportant. In most States 
the companies are included in the insurance code, being regulated 
and taxed as insurance companies. Last year 50 bonding^and^surety 
companies and 7 title companies paid taxes of $14 418 29 and 
$8,975.86, respectively. ’ 

On April 25, 1932, a bill was introduced in the Senate (S 4483) 
providing, among other things, for the revision of taxes on bonding 


15 


TAXATION OF INCOMES, ETC. 

and title companies. The Senate bill proposes to tax these organiza- 
tions on their real estate and tangible personal property within the 
District of Columbia, and in addition levy a franchise tax of 2 per 
cent upon their gross earnings. The chairman of the Senate Com¬ 
mittee on the District of Columbia has asked this bureau to make a 
s ". l ?5D 7 th e bill- i n compliance with the request a separate report 
will be submitted treating ol the taxation of bonding and title com¬ 
panies. Inasmuch as their activities are analogous to those of insur¬ 
ance companies, the two groups will be included in the subsequent 
report. 

Summarizing the situation, the financial corporations described 
above as paying gross earnings or gross receipts taxes might properly 
lie exempted from the operation of the proposed income tax law, and 
their fair tax burden fixed by other forms of taxes. 

Public utilities. —-In contrast to the preceding group, this group 
comprises corporations that have obtained some special privilege 
from the municipal government enabling them to use the streets and 
public places for furtherance of their activities. Taxes on public 
utilities have undergone many changes. In the early years of the 
country’s history, and up to the middle of the nineteenth century, 
these organizations in many cases not only were untaxed, but subsi¬ 
dized. Becoming financially successful about the time of the Civil 
'War, they were looked upon as fit subjects for taxation, and laws 
passed bringing them under the general property tax. Later special 
statutes were enacted relating to public utilities, each State following 
a particular course, so that now a great variety of laws may be found 
on the subject. The National Tax Association in 1922 called atten¬ 
tion to the great variety and confusion in the methods of taxing public 
utilities in the several States, and to the extreme difficulty in working 
out a rational plan for imposing taxes. The committee handling the 
matter stated that the most striking features of the existing taxation 
of public utility corporations were (1) the extraordinary variety in 
the methods followed by the several States, (2) the duplication and 
confusion from the decentralized taxation of property by the local 
jurisdictions, and (3) the lack of any guiding principle in the taxation 
of public utilities, and in the place of such taxes in the tax system as 
a whole. It found that there were as many varieties of public utility 
taxes as there were States, indeed more, as frequently the same State 
used different methods for different classes of utilities. Since then 
the situation has not improved. Misunderstandings have arisen 
because of the different taxes imposed under similar names, and the 
same taxes levied under different names. 

It would be impracticable within the scope of this study to attempt 
a discussion of the methods employed, but the question invariably 
arises: How far should the Government go in obtaining contribution 
in the way of taxes from these enterprises? No one denies that the 
privileges they receive justify their taxation, but to what extent? 
Public utilities are operated not alone for profit to their owners, but 
for rendering service to the community. Taxes imposed upon them 
are passed along to their patrons so that by public regulation they 
are allowed a fair return on their capital. It seems fair and reason¬ 
able that the taxes of public utilities, as nearly as possible, should 
be on an equality as to amount with taxes on other kinds of property 
and businesses. Many students of taxation take the view that public 


16 


TAXATION OF INCOMES, ETC. 


utility taxes should be the same as those imposed on other property, 
and under the same rates and conditions. They contend there is no 
reason that a special tax policy must be applied to public service 
industries as distinguished from other businesses, and that a uniform 
treatment will accord the best results. Others take the view that 
equality can best be attained by separate classification and special 
treatment, in which neither uniformity of method nor rate is essential. 
In arriving at this conclusion they contend that the business is peculiar 
because of its highly technical character, that its activities can be 
viewed only as a whole and not in separate parts, and that as a reg¬ 
ulated enterprise special taxes are essential to meet these conditions. 

The select committee to investigate fiscal relations between the 
United States and the District of Columbia, on page 19 of its report, 
summarizes the situation in respect to taxation of public utilities: 

All the public utilities in the District are subject to specific taxation or franchise 
taxes. The tax is based on gross earnings or gross receipts and the rate varies 
according to the class of corporation. 

The rate on the gross earnings of gas companies is 5 per cent. Electric street- 
railway companies are taxed at the rate of 4 per cent on gross receipts. Electric 
light companies are taxed at 4 per cent on gross earnings. Telephone companies 
are taxed at 4 per cent on gross earnings. 

It will be noted that these rates of taxation are unequal and, therefore, violate 
the basic principle of equality in taxation. If the present system of taxing 
these utilities is to be continued, and the committee doubts its widsorn, the law 
should be amended so as to provide uniformity in the rate of taxation. 

According to figures furnished the committee by the office of the District 
assessor, if these various utilities were taxed on an ad valorem basis of valuation 
the District would gain considerable revenue. These companies paid last year 
in taxes a total of $1,611,000. It is estimated by the District assessor’s office 
that if they had been taxed at the same rate of taxation as imposed on other 
classes of tangible and intangible property they would have paid $2,500,000 or 
approximately $900,000 more than they paid under the present system. The 
present specific tax on gross earnings and gross receipts is in lieu of any ad 
valorem tax on tangible personal proeprty and the millage tax on intangible 
personal property. 

The inclusion of public utilities under the proposed income tax 
law would increase the taxable corporation income in the District 
about $12,000,000, which at the rates prescribed in the bill would 
produce added revenues of $590,000. 

The estimate of the assessor’s office, on which the statement of 
the committee is based, is shown below: 


TAXATION OF INCOMES, ETC. 


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18 


TAXATION OF INCOMES, ETC. 

The foregoing table indicates that this group of businesses is not 
paying as high taxes, according to their investment in property, as the 
average taxpayer in the District of Columbia. The question then 
arises as to whether or not they are paying taxes comparable with 
representative companies elsewhere. In order to determine this, a 
separate table has been compiled for each class of public service 
corporation in the group, showing the percentage'of taxes paid (exclu¬ 
sive of Federal income taxes) to gross operating revenues. By this 
method the obstacles of divergent bases and rates can be overcome, 
and taxes brought to a similar footing. 

For comparative purposes these corporations may be divided into 
four groups—street railway companies, telephone companies, electric 
power companies, and gas companies. 

Taxes paid by telephone company .—The Chesapeake & Potomac 
Telephone Co. (of New York) which operates the only telephone 
system in the District, pays 4 per cent tax on its gross earnings, plus 
the real estate tax. The following table shows the taxes (other than 
Federal income taxes) of the local company and other representative 
class A telephone companies in the United States. The group of 
companies selected have annual operating revenues of one to fifty 
million dollars. Taxes of the local company were 4.74 per cent of its 
operating revenues against an average of 6.77 of the other representa¬ 
tive companies. The latter figure is considered conservative as the 
Journal of Land and Public Utility Economics, Volume I, at page 53, 
shows that in 1922 the ratio of taxes to gross receipts for telephone 
companies was 7.14 per cent. 

The Chesapeake & Potomac Telephone Co. taxes for 1930 amounted 
to $409,867. At the average rate they would have been $585,898, an 
increase of $176,031. 


TAXATION OF INCOMES, ETC. 



Representative class A telephone companies of the United States, year ending 

December 31, 1930 1 


I. c . c . 

com¬ 

pany 

No. 

Company 

Operating 

revenues 

Taxes 
other than 
United 
States Gov¬ 
ernment 
taxes 

Per cent 
of taxes 
to oper¬ 
ating 
reve¬ 
nues 

Investment 
in fixed 
capital 

Per cent 
of taxes 
to fixed 
capital 

4 

Associated Telephone Co. (Ltd.). 

$ 2 , 545,131 

$ 163,001 

6 . 40 

$ 12 , 288 , 963 

1.33 

5 

Hell Telephone Co. of Nevada. _ 

1 , 041,883 

132,170 

12 . 69 

6 , 159 | 609 

2.15 

9 

Carolina Telegraph & Telephone 
Co_ 

1 , 310.836 

132 , 947 

10.14 

4 , 387 , 877 

3.03 

12 

Chesapeake & Potomac Tele¬ 
phone Co. of Baltimore City.. 

13 , 933,188 

1 , 050 , 015 

7 . 54 

48 , 109,392 

2.18 

13 

Chesapeake & Potomac Tele¬ 
phone Co. of Virginia_ 

8 , 173,272 

555,032 

6 . 79 

29 , 343 , 250 

1.89 

14 

Chesapeake & Potomac Tele¬ 
phone Co. of West Virginia_ 

6 , 150 , 273 

385 , 242 

6 . 26 

23 , 364,122 

1.65 

15 

Cincinnati & Suburban Tele¬ 
phone Co_ 

10 , 515 , 300 

698 , 931 

6.65 

38 , 191,613 

1.83 

20 

Dakota Central Telephone Co.. 

1 , 678 , 878 

117,255 

6 . 98 

6 , 366,103 

1.84 

31 

Home Telegraph <fc Telephone 
Co. of Spokane (Wash.) 

1 , 704 . 626 

139 , 522 

8 . 18 

7 , 769 , 403 

1.80 

38 

Indiana Bell Telephone Co 

13 , 417 , 509 

1 , 152 , 293 

8.58 

45 , 236 , 356 

2 . 55 

53 

Lincoln Telegraph & Telephone 
Co_ . 

3 , 228 , 857 

155 , 652 

4 . 82 

12 , 735,130 

1.22 

59 

Michigan Bell Telephone Co. . 

41 , 502 , 997 

3 , 709 , 516 

8 . 70 

174 , 635 , 060 

2 . 12 

63 

Mountain States Telegraph & 
Telephone Co.._... . 

22 , 972 , 845 

1 , 600 , 245 

6 . 97 

89 , 086 , 611 

1.80 

64 

Mutual Telephone Co. (Hono¬ 
lulu, Hawaii).. _ 

1 , 513,608 

127,379 

8 . 42 

5 , 053 , 872 

2 . 52 

67 

New Jersey Bell Telephone Co .. 

49 , 870 , 453 

3 , 421,072 

6. 86 

181 , 875,179 

1.88 

73 

Northwestern Bell Telephone Co. 

34 , 924,803 

1 , 699 , 506 

4. 87 

122 , 156 , 293 

1.39 

75 

Ohio Bell Telephone Co_ _ 

44 , 264 , 952 

3 , 053 , 305 

6 . 90 

168 , 055,144 

1.82 

84 

Rochester Telephone Corporation 

5 , 348 , 709 

219,106 

4.10 

18 , 467 , 022 

1.19 

89 

Southern California Telephone 
Co... . . _ _ 

33 , 996,856 

2 , 353 , 872 

6.92 

160 , 832,118 

1.46 

91 

Southern New England Tele¬ 
phone Co_ ._ 

17 , 5 o 9,296 

691,113 

3 . 94 

69 , 300 , 205 

1.00 

102 

Tri-State Telephone Co... _ 

5 , 840,207 

236,519 

4.05 

22 , 551,511 

1.05 

105 

United Telephone Co. (Abilene, 
Kans.) ___ 

2 , 061,336 

123 , 985 

6.01 

6 , 636 , 286 

1.87 

109 

West Coast Telephone Co... 

1 , 487 , 290 

154,431 

10 . 38 

7 , 858,110 

1.97 

111 

Wisconsin Telephone Co.__ 

18 , 186,267 

1 , 152,429 

6.34 

70 , 060 , 014 

1 . 64 


Total class A companies_ 

343 , 229,372 

23 , 224 , 538 

6 . 77 

1 , 330 , 519 , 243 

1.75 

11 

Chesapeake & Potomac Tele¬ 
phone Co. (New York), Wash¬ 
ington, D. C . ... _ 

8 , 654,334 

409,867 

4.74 

30 , 779,864 

1.33 


1 From statistics compiled by Interstate Commerce Commission. 


Taxes paid by gas companies .—Manufactured gas used in the Dis¬ 
trict of Columbia is distributed by the Washington Gas Light Co. or 
the Georgetown Gas Light Co., which are affiliated under one busi¬ 
ness control. Their taxes consist of 5 per cent of the gross earnings 
(operating revenue less cost of gas manufactured), plus the real 
estate tax. During the calendar year 1930, the Washington Gas 
Light Co. paid taxes (exclusive of Federal income taxes) amounting 
to $250,397 or 4.52-per cent of its operating revenues; the George¬ 
town Gas Light Co. $24,488 or 2.29 per cent, making their combined 
taxes $274,885, or an average of 4.16 per cent of the combined operating 
revenues. Some difficulty was experienced in making a comparison 
with gas companies in other localities. In the majority of instances 
where financial data were available, taxes were not shown separately, 
and in other cases the reports also covered operation of gas and 
electric plants combined in one statement—as, for example, the Con¬ 
solidated Gas Co. of New York and Pacific Gas & Electric Co. of 
Los Angeles. 








































20 


TAXATION OF INCOMES, ETC. 


The following table shows the taxes paid and the percentages 
which they bear to operating revenues of all representative gas com¬ 
panies for which data were obtained during the survey. 


Manufactured gas companies, for the year ending December 31, 1930 1 


Company 

Location 

Operating 

revenue 

Taxes in¬ 
cluding 
Federal 
income 
tax 

Per 
cent 
taxes to 
operat¬ 
ing rev¬ 
enue in¬ 
cluding 
Federal 
income 
taxes 

Esti¬ 

mated 

Federal 

income 

taxes 

Taxes ex¬ 
cluding 
Federal 
income 
tax 

Per 
cent 
taxes to 
operat¬ 
ing rev¬ 
enue ex¬ 
cluding 
Federal 
income 
taxes 

Citizens Gas Co. of In¬ 
dianapolis. 

Indianapolis-. 

$5. 528, 142 

$423, 601 

7. 66 

$50,030 

$373, 571 

6. 76 

Detroit City Gas Co_ 

Detroit_ 

18, 446, 059 

2, 047, 372 

11. 10 

432, 647 

1,614, 725 

8. 75 

Des Moines Gas Co_ 

Des Moines. 

1,358, 599 

219, 468 

16. 15 

47, 992 

171,476 

12.62 

Laclede Gas Light Co.. 

St. Louis__ 

7, 976, 245 

934, 282 

11.71 

141, 080 

793, 202 

9. 94 

Peoples Gas Light Co.-. 

Chicago.-. 

39, 880, 628 

3,806, 154 

9.54 

981, 419 

2, 824, 735 

7.08 

Milwaukee Gas Light 
Co. 

Milwaukee_ 

6, 300, 560 

1, 016, 367 

16. 13 

188, 387 

827, 980 

13. 14 

Los Angeles Gas Co_ 

Los Angeles_ 

16, 655, 607 

1,729,315 

10. 38 

400, 902 

1,328,413 

7.98 

Brooklyn Union Gas 
Co. 

Brooklyn .. 

25, 472, 253 

2, 101,889 

8. 25 

730, 191 

1, 371, 698 

5. 39 

Fall River Gas Works 
Co. 

Fall River .. 

1, 000,106 

158, 609 

15. 86 

27, 319 

131,290 

13.13 

Total. 


122, 618,199 

12, 437, 057 

10.14 

2, 999, 967 

9, 437, 090 

7. 70 

Georgetown Gas Light 
Co. 

Washington, D. C. 

1, 070, 283 

43, 379 

4. 05 

18,891 

24, 488 

2.29 

Washington Gas Light 
Co. 

.do.. 

5, 536, 207 

327, 545 

5. 92 

77, 148 

250, 397 

4. 52 

Total Georgetown and 
Washington Gas 
Light Co.’s (com¬ 
bined). 


6, 606, 490 

370, 924 

5.61 

96, 039 

274, 885 

4.16 


1 Prepared from annual reports published in the standard statistics and from information furnished by 
the Public Utilities Commission of the District of Columbia. 


The results show that the average taxes paid during 1930 by the 
nine companies listed were 7.70 per cent of their operating revenues. 
Although the number of companies is very limited, the average 
obtained is in line with that reported in Moody’s Manual on Public 
Utilities for 1931, Page XLVI. The total operating revenues of all 
manufactured gas companies is there reported as $532,872,000 with 
taxes of $52,307,000. Deducting estimated Federal income taxes 
gives $37,856,818 for State and local taxes. This is 7.10 per cent of 
the operating revenues. If the local gas companies were assessed at 
the averaged rates shown by the table they would pay a combined 
total tax of $508,700, an increase of $233,815. 

Taxes paid by electric light and power companies .—Electric light and 
power companies pay 4 per cent tax on gross receipts, in addition to 
the real-estate tax. As mentioned above, in many cases they are 
operated with gas companies and published reports combine the two 
activities. The following information has been secured on 17 com¬ 
panies considered as fairly representative: 















































21 


TAXATION OF INCOMES, ETC. 


Electric power and light companies 


Company 


Year ending 


Broad River Power Co.. 

Carolina Power & Light Co_ 

Duke Power Co... 

South Carolina Power Co._! 

Southern Public Utilities Co.. 

Wisconsin Power & Light Co_ 

Michigan Gas & Electric Co_ 

Kentucky Utilities Co_ 

Southern Ohio Public Service Co.. 

Montana Power Co... 

Nebraska Power Co_ 

Portland Electric Power Co_ 

Puget Sound Power & Light Co... 
San Joaquin Light & Power Co... 
Southern California Edison Co. 
(Ltd.). 

Cleveland Electric Illuminating 
Co. 

Consolidated Gas & Electric Co... 


South Carolina_ 

_do... 

_do.. 

_do__ 

_do.. 

Madison.... 

Lansing_ 

Louisville_ 

Zanesville.. 

Butte__ 

Omaha.... 

Portland_ 

Seattle_ 

Fresno__ 

Los Angeles.. 


Dec. 31, 1930 

_do_ 

_do_ 

_do. 

_do_ 

Dec. 31,1931 

_do.. 

_do_ 

Dec. 31,1930 
Dec. 31,1931 
Dec. 31,1928 
Dec. 31, 1929 
Dec. 31,1931 

_do.. 

_do.. 


Cleveland 


Dec. 31,1930 


Baltimore. 


do 


Total.. 

Potomac Electric Power Co 


Washington, D. C. 


Dec. 31,1931 


Operating 

revenues 

Taxes 

(other 

than 

United 

States 

Federal 

income 

tax) 

Per 
cent 
taxes 
to oper¬ 
ating 
reve¬ 
nues 

$2, 836, 734 

$236, 194 

8. 33 

1, 712,865 

151,125 

8. 82 

5, 219, 759 

455, 202 

8. 72 

2, 164, 531 

126, 967 

5. 87 

2. 667, 305 

169, 506 

6. 35 

8, 929, 400 

994, 200 

11.13 

626, 332 

51,453 

8. 21 

. 6,354,141 

494, 060 

7. 78 

982, 111 

54, 088 

5. 51 

6, 744, 031 

845, 240 

12. 53 

5, 330, 170 

487, 939 

9. 15 

12, 245, 929 

1,265, 273 

10. 33 

12,519,906 

891, 535 

7.12 

11,222,748 

836, 878 

7.46 

40, 154, 417 

3, 203, 356 

7.98 

26, 481,760 

2,108, 012 

7. 96 

28, 582, 423 

1,931,695 

6. 76 

174, 774, 562 

14, 303, 023 

8.18 

10, 857, 476 

453, 278 

4.17 


Statistics prepared from annual reports on file with the Federal Power Commission, State utility com¬ 
mission publications, and information furnished by the Public Utilities Commission of the District of 
Columbia. 


From this table it will be seen that the average tax paid amounted 
to 8.18 per cent of the operating revenues. The figure reasonably 
agrees with statistics in Public Utility Economics, by M. G. Glaeser, 
page 577, which shows 7.40 per cent as the ratio of taxes to gross 
receipts for electric light and power companies in 1922. This slight 
divergency might be expected considering the tendency toward 
increased taxation during the past decade. Against these averages, 
the Potomac Electric Power Co. paid 4.17 per cent, a ratio lower 
than that of any company listed in the table. The taxes paid by the 
Potomac Electfic Power Co. for 1931 amounted to $453,278. Based 
on the average shown in the table they would have been $888,142, or 
an increase of $434,864. 

Taxes paid by street railway companies .—Street railway companies 
pay 4 per cent on gross receipts in the District, in addition to the 
real-estate tax. Also, some other incidental charges are made 
against these companies for traffic policemen at street railway inter¬ 
sections and paving costs (to be discussed in report on S. 4483). 
During the calendar year 1930 the principal electric railways in the 
United States paid taxes (other than Federal income taxes) amounting 
to 6.26 per cent of their operating revenues. In the District the 
ratios of the Capital Traction Co. and the Washington Railway & 
Electric Co. w^ere 5.09 and 5.32 per cent, respectively, of their operat¬ 
ing revenues. The ratio of the combined totals for the tv r o compa¬ 
nies was 5.23 per cent. Together they paid a total of $490,994. Had 
thev been assessed at the average rate for the L nited States, their 
taxes would have been $588,120, representing an increase of $97,126, 
or approximately 20 per cent. The charges for traffic policemen and 





















































22 


TAXATION OF INCOMES, ETC. 

paving costs have not been included in this computation. A table 
showing the revenues and taxes of the principal electric railway 
companies of the United States follows: 


Principal electric railways of the United States, year ending December 31, 1930 

[Statistics from Transit Journal, April 19321 


Company 

Operating 

revenues 

Taxes, in¬ 
cluding 
United 
States 
Govern¬ 
ment taxes 

Percent¬ 
age. taxes 
to oper¬ 
ating 
revenues 

Esti¬ 

mated 

Federal 

taxes 

Net State 
taxes 

Percent¬ 

age 

ordinary 
taxes to 
operating 
revenues 

Boston Elevated Ry., Boston, Mass. 
Brooklyn-Manhattan Transit ('or- 

$32, 510, 721 

$1,686. 950 

5.19 

0 

$1,686, 950 

5.19 

poration, New York (fiscal year).. 

60,700,981 

4, 001, 505 

6. 59 

$115, 830 

3, 885, 675 

6.40 

Brooklyn & Queens Transit Cor- 



poration, New York (fiscal year).. 

23, 589,180 

1,389, 323 

5.89 

349, 574 

1, 039, 749 

4.40 

Chicago Motor Coach Co., Chicago, 



Ill_ 

5, 806, 178 

471,708 

8.12 

74, 061 

397, 647 

6.85 

Chicago, North Shore & Milwaukee 




R. R., Chicago, Ill_ 

Chicago Rapid Transit Co., Chi- 

6. 672, 508 

290, 592 

4.36 

81, 526 

209, 066 

3.13 





cago. Ill_ 

19, 624, 045 

1,860, 092 

9. 48 

28, 345 

1,831,747 

9. 33 

Chicago, South Shore & South 




Bend R. R., Chicago, 111_ 

3, 556, 706 

59, 537 

1.67 

41,828 

17, 709 

.50 

Cincinnati Street Rv., Cincinnati, 



Ohio. _ _ _ .. _ 

8,123, 961 

690, 877 

8.50 

0 

690, 877 

8.50 

Cleveland Ry., Cleveland, Ohio_ 

17, 648, 758 

1,412,935 

8.01 

30, 250 

1, 382, 685 

7.63 

Denver Tramway, Denver, Colo_ 

Department of Street Rjs., De- 

3,987, 772 

485,191 

12.17 

42, 484 

442, 707 

11. 10 



troit, Mich_ 

21, 123.787 

774, 563 

3. 67 

486.133 

288, 430 

1.37 

Eastern Massachusetts Street Iiy., 



Boston, Mass_ . _ 

7, 829,407 

300, 405 

3. 83 

59, 573 

240, 832 

3.08 

Fonda, Johnstown & Gloversville 



Street Ry., Gloversville, N. Y_ 

922,123 

57, 640 

7.31 

0 

57, 640 

7.31 

Fresno Traction Co., Fresno, Calif.. 

267, 262 

16, 729 

6. 26 

0 

16, 729 

6.26 

Gary Ry., Gary, Ind_ 

1,166, 212 

48, 295 

4.14 

9, 230 

39, 065 

3.35 

Honolulu Rapid Transit Co., Hono- 




lulu, Hawaii_ 

1,047,821 

107, 977 

10.30 

25, 340 

82, 637 

7.89 

Houston Electric Co., Houston, Tex. 

3,092,815 

265. 345 

8. 58 

71,517 

193,828 

6.27 

Illinois Terminal Co., Springfield, 


111_ 

7, 490,935 

364, 323 

4.S6 

197, 876 

166, 447 

2.22 

Kansas City Public Service C'o., 



Kansas Citv, Mo_ 

8, 360, 425 

481,698 

5.76 

44, 750 

436, 948 

5 

Long Island R. R., New York, N. Y 

39, 596, 434 

3,453, 370 

8. 72 

820, 546 

2, 632, 824 

6.65 

Louisville Ry., Louisville, Kv _ 

New York Rys., New York, N. Y_. 

4, 561, 758 

469, 500 

10. 29 

47, 776 

421, 724 

9. 24 

5, 455, 288 

453, 288 

8.31 

13, 026 

440, 262 

8. 07 

New York State Rvs., Rochester, 


N. Y_ 

7, 607, 404 

531,884 

6. 99 

0 

531,884 

6.99 

New York Transportation Co., New 




York, N. Y_ 

6, 299, 768 

523, 915 

8.32 

60,915 

463, 000 

7. 35 

New York, Westchester & Boston 


Ry., New York, N. Y_ 

2, 485, 395 

272, 554 

10.97 

0 

272, 554 

10.9 

Northern Texas Traction Co., Fort 



Worth, Tex. . _ _ 

2,181,865 

162, 316 

7.44 

9,610 

152, 706 

7.00 

Northwestern Pacific R. R., Sau- 



salito, Calif_ 

5, 555, 563 

432, 754 

7. 79 

0 

432, 754 

7.79 

Omaha <fc Council Bluffs Street Rv., 


Omaha, Nebr_ _ 

3, 242, 929 

358, 641 

11.06 

0 

358, 641 

11.06 

Petaluma & Santa Rosa R. R., Pe- 

taluma, Calif_ 

520, 278 

22, 700 

4.36 

11,773 

10, 927 

2.10 

Philadelphia Rapid Transit Co.. 


Philadelphia, Pa_ 

52, 034, 691 

2,862, 397 

5. 50 

381, 574 

2, 480, 823 

4. 77 

Public Service Coordinated Trans- 

portation, Newark, N. J _ 

St. Louis Public Service Co., St. 

38, 990,913 

2, 728, 675 

7.00 

0 

2, 728, 675 

7.00 

Louis, Mo _ ... 

San Francisco Municipal Ry., San 

18. 705, 380 

1,826,123 

9. 76 

69, 490 

1,756,633 

9.39 

Francisco, Calif, (fiscal year)_ 

Staten Island Rapid Transit Co., 

3, 574, 463 

370, 631 

10. 37 

0 

370, 631 

10. 37 

New York, N. Y___ . 

2, 448,959 

207, 492 

8.47 

40, 654 

166, 838 

6.81 

Third Avenue Ry., New York, 



N. Y. (fiscal year)_ 

Twin City Rapid Transit Co., Min- 

17, 618, 580 

1,155,440 

6.56 

0 

1,155, 440 

6.56 

neapolis, Minn___ 

Union Street Ry., New Bedford, 

12, 324, 321 

875,156 

7.10 

1.58,144 

717, 012 

5. 82 

Mass_ _ 

United Electric Ry., Providence, 

1, 103, 074 

45, 942 

4.16 

0 

45, 942 

4.16 

R. I_ .. . 

6, 544, 504 

331,872 

5. 06 

22, 033 

309, 839 

4.73 






















































TAXATION OF INCOMES, ETC. 



Principal electric railways of the United States, year ending December SI, 19S0 —* 

Continued 


[Statistics from Transit Journal, April 1932] 


Company 

Operating 

revenues 

Taxes, in¬ 
cluding 

U nited 
States 
Govern¬ 
ment taxes 

Percent¬ 
age taxes 
to oper¬ 
ating 
revenues 

Esti¬ 

mated 

Federal 

taxes 

Net State 
taxes 

Percent¬ 

age 

ordinary 
taxes to 
operating 
revenues 

United Rys. & Electric Co., Balti- 







more, Md_ _ _ 

$16,160,513 

$1, 557, 004 

9. 63 

$54,637 

$1,502, 367 

9.30 

Total_ _ _ 

480, 533, 677 

33, 407, 339 

6.95 

3, 348, 495 

30, 058, 844 

6.26 

Capital Traction Co., Washington, 
D. C_ 

3,836, 579 

260. 309 

6. 78 

64, 925 

195, 384 

5.09 

Washington Ry. & Electric Co., 




Washington, D. C_ _ 

5, 558, 304 

332, 560 

5.98 

36, 950 

295,610 

5.32 

Total_ 

9. 394, 883 

592, 869 

6.31 

101,875 

490, 994 

5.23 


To tax public utilities in the District of Columbia at the average 
rates in other localities as shown in the foregoing tables, would produce 
additional revenue of $941,836. A table showing the computation 
follows: 


Public Utility 

Ratio of 
taxes to 
operating 
revenues, 
District of 
Columbia 

Amount of 
taxes paid 
in District 
of Colum¬ 
bia 

Ratio of 
taxes to 
operating 
revenues, 
other locali¬ 
ties 

Amount of 
taxes based 
on ratio for 
other locali¬ 
ties 

Increase 

Telephone companies_ 

Manufactured gas companies_ 

Electric light and power companies- 

Electric railway companies_ 

Total - ___ 

Per cent 

4. 74 
4.16 
4. 17 
5.23 

$409,867 
274,885 
453, 278 
490,994 

Per cent 

6. 77 

7. 70 
8.18 
6. 26 

$585, 898 
508, 700 
888, 142 
588, 120 

$176,031 
233,815 
434, 864 
97, 126 


1, 629, 024 


2, 570, 860 

941,836 





From the preceding table it is clearly shown that public utility 
corporations in the District are in a favored position as compared 
with representative companies in other localities. In order that the 
tax burden may be more equitably distributed in the District of 
Columbia, taxes of local public utilities should be made commensurate 
with those elsewhere. 

The portion of the Senate bill (S. 4483) providing for a revision of 
the laws relating to public utilities proposes to tax their real and 
personal property in the same manner as other private property, and 
in addition to levv a tax of 2 per cent on gross earnings. Pursuant 
to the request of the Senate committee, this subject will be covered 
in a separate report treating of the taxes of public utilities including 
railroads, intorurban electric lines, bus companies, and other classes 
of businesses transacted in the District. Pending submission of the 
report on this latter bill the bureau wdl withhold comment on sec¬ 
tion 22, which provides exemption of corporations paying gross 
earnings or gross receipts taxes. 
























































24 TAXATION OF INCOMES, ETC. 

VI. RATE STRUCTURE 

Rate plans in income tax laws applying to individuals are cus¬ 
tomarily based on the theory of ability to pay. That is, as a man’s 
income increases it is assumed that he can more easily contribute at 
higher rates on the upper ranges of his income, and that the taking 
of even a minor part of a small income may cause a greater sacrifice 
than the taking of a considerable part of a large one. In making 
this distinction, incomes are divided into graduated blocks, usually 
in multiples of $1,000, and increasing rates are applied to the suc¬ 
cessive blocks. This method is prescribed in the pending bill. A 
somewhat different practice, occasionally found, is the making of a 
distinction between earned and unearned incomes, amounts realized 
from personal efforts being subjected to rates lower than those from 
holdings in securities. The reason advanced for low taxes on earned 
incomes is that a working person should be permitted to accumulate 
capital sufficient to support him when no longer able to follow an 
occupation. Massachusetts, New Hampshire, and Tennessee, have 
special provisions of law dealing with income from intangible prop¬ 
erty. Differentiation of sources of income, though theoretically 
desirable, leads to complications in the tax system, so that most 
States having income taxes are content to vary the rates according 
to size of income, but no two agree on the rates assigned to the 
respective brackets. 

While the principle underlying the progression theory is economic¬ 
ally sound, the graduation of tax rates has its limitations and must 
be considered with other tax phenomena. In those States that have 
income taxes, two distinct systems are operating at the same time, 
the Federal income tax and the State income tax. At present the 
Federal Government levies two classes of taxes on individuals, a 
normal tax and a surtax. The normal tax rates are 1% per cent on 
the first $4,000 of net income, over the exemptions, 3 per cent on the 
next $4,000, and 5 per cent on the remainder; the surtax rates are 1 
per cent on net incomes, without exemptions, beginning at $10,000, 
and increasing to 20 per cent on net incomes over $100,000. The 
revenue bill for 1932 now pending before Congress proposes to raise 
the normal tax rates to 2, 4, and 7 per cent, and the surtaxes so that 
they will range from 1 per cent on net incomes beginning at $6,000 
to 40 per cent on net incomes of $100,000 and over. (H. R. 10236, 
72d Cong., 1st sess., passed by House of Representatives April 1, 
1932.) The heavy taxation by the Federal Government has virtually 
forced the States to adopt mildly progressive rates, as evidenced by 
the following table: 


State income taxes—Rates (per cent ) on individuals 


TAXATION OF INCOMES, ETC. 


$9,000 to 
$10,000 

X ^ £ X 

CO04O4TjtTf ri CO toN H If3 1(3 C4 lOOOkraiO'tf 04 CO i© 04 

$8,000 to 
$9,000 

:£ ssds 2! ;s 

CO 04 04 CO ft CO CD Tf CO 04 ,-< i© i© 04 >© 00 >© i© •*»< 04 'f CO r*< 04 

$7,000 to 
$8,000 

CO 04 04 ^ CO »-t CO CO 'Jt CO 04 *H i© Tf 04 i© 00 t*H© CO 04 Tf CO 04 

$6,000 to 
$7,000 

3? X ^ 3£ 

eooioiTfco >-t co <©co 04 wo-tet 04 i©oO'<fi©co O4tt<cocoo4 

$5,000 to 
$6,000 

O 

Njl 

CM M <M CO CO ^COCO^COC^rH^COC^ O 00 COO ^ co co cm 

$4,000 to 
$5,000 

04 04 -H CO CO r-t CO CO CO 04 04 h CO 04 i© 00 CO i© 04 04 ■**« 04 04 n 

$3,000 to 
$4,000 

9 

CM <M CM CM ^HCO<OcO<MMrH0OC^<M ^OONOh <M t*< (M <M 

$2,000 to 
$3,000 

o 

*s^s^4v-4 sT'l 

h\ OJ\ F4Sf4\i-t\ 

*-H M C* HCOCOCOCKNHCOWW COOOWlOH Nrf hhh 

-a— 

$1,000 to 
$2,000 

o 

N*N NS»» 

iks t4\h\ c® s * petHS 

HHHH04 H CO C© 04 f-H 04 i-l 04 i—1 04 04 00 >-< l© H 04 Tjt r-t rH H 

0 to 
$1,000 

o 

Vp» nM v<-t NT* 

T-fS rn\ a*\ h\ 

iH rH r—4 r—4 CO CO <M * (M r—1 CO *0 <M ^ ^ ^ 


c ri 
<D 


0 

0 

0 

c3 

X5 

0 

c3 

co' 

CO 

8 


CO 

<D 

c3 

(-i 


CO 

a co^ 
° ^ 

© bD P! 

og ' 

i-i cc 

P-1 


c3 


ii 


w £ 
w cS.« 


-*£ «- to •— 

p £% 9 

P'S o 


ft 


CO 

Oi 


CxC 

ft 

<3 


<v 

s 

CO 


03 ^ 
q <3 

c 


J 0 'S s * 


w row ;»uo$o 

S^°o«£Qh 
'£'3 © 

-<qo2bS 


ft 

•H h 03 


01 ^ § 
oofl B 


S gWpH 

tO to £» fc. - 

to to P- p (i 

' © © O O 


o 
c3 




8 

§ 

’So 

a 

03 


08 

sa 

**-« bC 

a 2 
-^.9 

t- 

2 0 
5 2 

O vft 

a> a? 

9 9 

.. o o 

fl O © 

o a a 
txl—11—I 

© 

ll 


© 

9 

05 2 
a a 


o .. 

t- © 
os © 

O tr - 
to 

5 Pxi 

3 fl oj k 
o ©+* © 

caE H PE> 


© 

9 

o 

© 

a 

•ih 

CO 

CO 

o 

^.9 

§B 

9 « 


be 

a 

03 


03 ‘ 
'2 ( 
fl C 

’'S' 

,fc3K 


•T3 
© 
1 co 
> O 

ig 

: £ 


See footnotes at end of table, 




















































State income taxes—Rates (per cent) on individuals —Continued 


26 


TAXATION OF INCOMES, ETC. 



^ S 

HCOOiO^WCOCOOiO 


ogoo»o^ 


$50,000 to 
$100,000 

X X ■ JR 

loeouo^feo HCOOiO^NMO®^ iO00»O»OTt< C* c<5 b- >c 

$30,000 to 
$50,000 

o 

sW ^ V 

m o>n 

lO CO *C Tf CO H CO CO lO(N CJ CD OiOOOiOO^ CS ^ CO ^ 

$25,000 to 
$30,000 

X ■ X X X 

locoio-^feo rH CO to iO •*»< C^J <N CO 50 >o 00 »C *C e^Tl<cot^bO 

$20,000 to 
$25,000 

X £ S X 

^COO^IO HCCCOkO^NWCOO^ iO 00 iO »0 ^ c^^fcor-co 

$16,000 to 
$20,000 

JR X X 

-*f< eo ■«*< •**< O 1-1 CO «D lO <N CS CO CD CO >0 00 >0 to difcot-m 

$15,000 to 
$16,000 

© 

sN sc- 

r-K Xs ON 

CO ^ ^ rj< r-^ CO CO lO ^ CS CO CO CO lOOOiOiO^ C*T*«COt^CO 

$12,000 to 
$15,000 

X JR X X 

CO CO ^ ^ rH CO CD Tf rf< M (N CO CD CO U2 00>0>0^ C* CO <N 

$11,000 to 
$12,000 

o 

sT^ ^ VJ» s£N 

Xx oi s ' r2\ 

^COCO-^^ 1-* CO CO ^ ^ C* CO CO CO »OXiO>DTt< C^^COCOCN 

$10,000 to 
$11,000 

o 

CO CO CO ^ ^ rH CO CO ^ C* CO CO CO iCXiD»D^ Cl CO iO Cl 


m 02 

c3 i-i ^ 
M C3 ^ 


C/2 

02 


3 

a 

a 

cfl 

a 

cfl 


C/J 

a; 

C5 

••H 

c /2 

3 

,0 


02 

T3 

03 

Jh 


eo c /2 

G ^ r2 

.2 ^ Xi 

I £‘3> 
® be a 
o c,<s 

L_, CO 


a 

H*- 1 

..SflS 

w o.S o 

+■? >- fc. 

$ ® “®-~ 


l^S 

o8g8 


C/2 

^02 

3 

•■—4 

bfi 

a 

ca 


03 

a o3 


a is ’So o -S 03 a 2s a 


* « 8 * ^ 

«sPo2r^ 


.a 

, P," '5 S 

S. j S iS 53 ts 

•-SsooQ 
.22 o ^ ^ x: .a 

M W |v k +3 +J 

c /2 c n > & t~> u* 
r: — 02 02 o o 

^Z!z;:z;£ 


C/2 

02 


be 

C 

03 


Sa 

sa 

•*- bfi 

a fl 

03 03 

xj-S 


2 2 
5 o 

r\ .*-* 


02 
2 

03 S 

a a 


2 2 ^ 8 


03 M 

3 £ 

oo 


o o w 


® 


® 


2.5 

I s 

.5 o 

i- 
W V-. 

® ® 

.2 S 

C/j P 


eg 

2 

CS X3 

3 O es s- 

5 ® •“ ® .. „ 

w£-<P> > Ph 


Q 
<-* 
o 
a *“ 

H T3 

n « s « 

®‘3 S3 </j 
a o o o 

—I "3. O Q. 

^.S O 


1 Rates fixed annually. 

2 1932 rates shown; 1931 rates were 50 per cent higher. 

J In addition to normal tax a surtax of y& normal rates is levied on that part of income in excess of $3,000. 

















































TAXATION OF INCOMES, ETC. 


27 


The table below shows the proposed District rates on the various 
blocks of individual incomes compared with the average in those 
States which have taxes determinable on substantially the same basis 
proposed in the District bill. On incomes up to $50,000 the District 
rates would be lower than the average, but above that amount they 
would be higher. 

Comparison of proposed District rates on individuals with average rates in States 


Income blocks 

District. 

rates 

Average 
rates in 
States 1 

Income blocks 

District 

rates 

Average 
rates in 
States 1 

Up to $2,000_ 

$2,000-$5,000_ 

$5,000-$10,000__ 

$10,000-$15,000__ 

Per cent 
1.00 
1.50 
2. 00 
2. 50 

Per cent 
1.38 

2.18 

3.17 
3.88 

$15,000-$20,000.. 

$20,000-$30,000__ 

$30,000-$50,000.. 

Over $50,000.. 

Per cent 
3.00 
3.50 
4.00 
5.00 

Per cent 

4. 08 
4. 28 
4.33 
4.42 


i Exclusive of rates levied on income from intangibles in the following States: Massachusetts, New 
Hampshire, Oregon, Tennessee, and Vermont. 


It is interesting to note that the rates of the States that are located 
nearest to the District of Columbia and that have income taxes are as 
follows: 


New York: Percen 

Up to $10,000_ 1 

$10,000-$50,000_ 2 

Over $50,000_ 3 

Delaware: 

Up to $3,000_ 1 

$3,000-$10,000_ 2 

Over $10,000_ 3 

Virginia: 

Up to $3,000_ 1H 

$3,000-$5,000_ 2% 

Over $5,000_ 3 

Massachusetts: 

Professions, trades, businesses, and annuities- 1% 

Sale of intangible property- 3 

Dividends and interest_ 6 


A table of State income tax rates on corporations, and a schedule 
averaging the rates, according to blocks of income, follow. In most 
jurisdictions the rates on corporations are level. Due to this fact 
the average has a variation of less than 1 per cent when applied to the 
blocks of income specified in the pending bill, the lowest being 3.09 
per cent and the highest 3.95 per cent. For incomes of less than 
$30,000 the District rates are lower, but for those of $30,000 and over 
they are higher, being more than 1 per cent greater on incomes over 
$50,000. Thus, comparatively the same situation is found for cor¬ 
porations as for individuals; that is, on small incomes the District 
rates are lower than the average of the States, but on the large 
incomes they are higher. 

121418—32-3 




































28 


TAXATION OF INCOMES, ETC. 


State income taxes , rates per cent on corporations 


State 

Up to 
$1,000 

$1,000- 

$2,000 

$2,000- 

$3,000 

$3,000- 

$4,000 

$4,000- 

$5,000 

$5,000- 

$6,000 

$6,000- 

$7,000 

$7,000- 

$8,000 

Arkansas_ ... ... 

2 

2 

2 

2 

2 

2 

2 

2 

California..... 

4 

4 

4 

4 

4 

4 

4 

4 

Connecticut........ 

2 

2 

2 

2 

2 

2 

2 

2 

Georgia...... 

4 

4 

4 

4 

4 

4 

4 

4 

Idaho- --- 

1 

1 

2 

2 

3 

3 

4 

4 

Aiassachusetts: 






234 

234 

234 

General business corporations_ 

234 

234 

234 

234 

234 

Corporations dealing in securities— 







6 


1. Interest and dividends... 

6 

6 

6 

6 

6 

6 

6 

2. Business income... 

134 

134 

134 

134 

134 

134 

134 

i34 

3. Sales of securities.... 

3 

3 

3 

3 

3 

3 

3 

3 

Mississippi.. 

234 

234 

334 

334 

334 

434 

434 

434 

Missouri---- 

2 

2 

2 

2 

2 

2 

2 

2 

Montana...____ 

1 

1 

1 

1 

1 

1 

1 

1 

New York >__... 

434 

434 

434 

434 

434 

434 

434 

434 

North Carolina.. . 

5J4 

534 

534 

534 

534 

534 

534 

534 

North Dakota..... 

3 

3 

3 

3 

3 

3 

3 

3 

Oklahoma...... 

2 

2 

2 

2 

2 

2 

2 

2 

Oregon..... 

8 

8 

8 

8 

8 

8 

8 

8 

South Carolina---- 

434 

434 

434 

434 

434 

434 

434 

434 

Tennessee____ 

3 

3 

3 

3 

3 

3 

3 

3 

Utah 2 .. 

3 

3 

3 

3 

3 

3 

3 

3 

Vermont....... 

2 

2 

2 

2 

2 

2 

2 

2 

Virginia_____ 

3 

3 

3 

3 

3 

3 

3 

3 

Wisconsin 3 __ ___ 

2 

234 

3 

334 

4 

5 

6 

6 

Proposed for District..____ 

1 

l 

134 

134 

134 

2 

2 

2 


State 

$8,000- 

$9,000 

$9,000- 

$10,000 

$10,000- 

$15,000 

$15,000- 

$20,000 

$20,000- 

$30,000 

$30,000- 

$50,000 

$50,000- 

$100,000 

Over 

$100,000 

Arkansas...._ 

2 

2 

2 

2 

2 

2 

2 

2 

California..... 

4 

4 

4 

4 

4 

4 

4 

4 

Connecticut..... 

2 

2 

2 

2 

2 

2 

2 

2 

Georgia.... 

4 

4 

4 

4 

4 

4 

4 

4 

Idaho...... 

4 

4 

4 

4 

4 

4 

4 

4 

Massachusetts: 









General business corporations. 

234 

234 

234 

234 

234 

23$ 

234 

234 

Corporations dealing in securities— 







1. Interest and dividends_ 

6 

6 

6 

6 

6 

6 

6 

6 

2. Business income.. 

134 

134 

134 

134 

134 

134 

134 

134 

3. Sales of securities_ 

3 

3 

3 

3 

3 

3 

3 

- 3 

Mississippi.... 

434 

434 

434 

534 

534 

534 

534 

534 

Missouri..... 

2 

2 

2 

2 

2 

2 

2 

2 

Montana___ 

1 

1 

1 

1 

1 

1 

1 

1 

New York 1 _ 

434 

434 

434 

434 

434 

434 

434 

434 

North Carolina____ 

534 

534 

534 

534 

534 

534 

534 

534 

North Dakota... 

3 

3 

3 

3 

3 

3 

3 

3 

Oklahoma....... 

2 

2 

3 

3 

4 

4 

4 

5 

Oregon..... 

8 

8 

8 

8 

8 

8 

8 

8 

South Carolina... 

434 

434 

434 

434 

434 

434 

434 

4 3$ 

Tennessee. ... 

3 

3 

3 

3 

3 

3 

3 

3 

Utah 3 .... 

3 

3 

3 

3 

3 

3 

3 

3 

Vermont..... 

2 

2 

2 

2 

2 

2 

2 

2 

Virginia__ 

3 

3 

3 

3 

3 

3 

3 

3 

Wisconsin 3 ... 

6 

6 

6 

6 

6 

6 

6 

6 

Proposed for District... 

2 

2 

234 

3 

334 

4 

5 

5 


i Business corporations pay the largest amount of tax collectible under any of the following: (a) 434 on 
net income, (b) One mill on every dollar of face value of issued stock with par value; on stock of no par 
value, one mill on every dollar of actual value, but not less than $5 value per share, (cl 4>4 per cent of a 
base computed as follows: From entire net income plus salaries and other compensation paid to officers 
and/or stockholders owning in excess of 5 per cent of the issued capital stock, deduct $5,000 and any net loss 
for the taxable year. From amount thus obtained an exemption of 70 per cent is granted, (d) A minimum 
tax of $25. 

s Minimum tax is one-twentieth of 1 per cent of fair value during taxable year of tangible property within 
Utah, but not less than $10. 

J Surtax is one-sixth normal rates on excess of $3,000. 


Comparison of proposed District rates on corporations with average rates in States 


Income blocks 

Proposed 

District 

rates 

Average 
rates in 
States 1 

Income blocks 

Proposed 

District 

rates 

Average 
rates in 
States 1 

Up to $2,000.. 

$2,000-$5,000. 

$5,000-$10,000. 

$10,000-$15,000. 

Per cent 
1.00 

1.50 
2.00 

2.50 

Per cent 
3.09 

3.27 
3.51 
3.58 

$15,000-$20,000. 

$20,000-$30,000. 

$30,000-$50,000.. 

Over $50,000... 

Per cent 
3.00 
3. 50 
4.00 
5.00 

Per cent 

3. 63 
3.68 
3.68 
3.95 


» For Massachusetts income of general business corporations is included. The rates vary for the different 
types of corporate earnings. 









































































































29 


TAXATION OF INCOMES, ETC. 

Concurrently with the District measure for an income tax, Congress 
has under consideration the internal revenue bill for 1932, which con¬ 
templates substantial increases in the Federal taxes. The combined 
effect would necessitate considerable readjustment in the finances of 
local taxpayers at a time when it is important to prevent undue 
disturbance in the economic structure. As the District bill stands, 
less than 300 persons, with incomes over $50,000, would pay approxi¬ 
mately $1,410,000 or nearly one-half of the estimated taxes. This 
same class would also be taxed heavily by the pending Federal reve¬ 
nue bill for 1932. With respect to corporations, the situation is 
analogous. On their incomes the proposed rates in the District bill 
are the same as on individuals, so that for amounts over $50,000 
local corporations would be required to pay 5 per cent to the District 
and 12 per cent (13% per cent as passed by the House of Representa¬ 
tives in the revenue bill for 1932) to the Federal Government. These 
payments would be in addition to other taxes on real property, tangi¬ 
ble personal property, license fees, etc. During the present period of 
readjustment, it seems advisable to keep the rates for the proposed 
District income tax at a minimum consistent with reasonable reve¬ 
nues. 

In 1931 the collections on intangible taxes amounted to $2,742,986. 
In 1932 they dropped, the tentative figure (which will be subject to 
little, if any, revision) is $2,547,042. Based on the average incomes 
during 1925 to 1929, considered as a representative normal period, 
the following rates for both individuals and corporations would more 
than replace the present intangible tax: 


Net income: Rate » per cent 

Under $10,000_ 1 

$10,000 to $25,000_ 2 

$25,000 to $50,000_ 3 

Over $50,000- 4 


Using the rates of 1 to 4 per cent on these blocks of income the 
estimated revenues would be in excess of $2,825,000. (See table on 
p. 74.) No precise maximum or minimum rates are demonstrable 
as constituting an equitable tax. Sound policy requires that final 
determination of the rates be governed by the amount of revenue 
needed, and the relative burden on taxpayers. With the Federal 
revenue act in force, the enactment of the proposed law will mean two 
taxes on incomes, one by the Federal Government and the other by 
the municipal government. The presence of other measures before 
Congress contemplating substantial increases in taxes in the District 
as heretofore discussed, together with the strong probability of a sharp 
revision upward in Federal rates, leads to the belief that consideration 
should be given to limiting the rates in the District at 1 to 4 per cent. 
With the exception of incomes taxed at the minimum rate of 1 per cent, 
the benefits of the reduction through general lowering of the respec¬ 
tive rate brackets would be distributed among all classes of taxpayers 

in the District. 

VII. PERSONAL EXEMPTIONS 

The personal exemptions in the bill, as heretofoie stated, aie 
$1 000 for a single person, $2,500 for a married person living with 
husband or wife, and $300 for each dependent. 

Among the States now having income taxes, Delaware, Idaho, 
Illinois, Mississippi, Missouri, North Carolina, North Dakota, Utah, 






30 


TAXATION OF INCOMES, ETC.- 


• 

and Vermont allow as the exemption to a single person, $1,000' 
Oklahoma, $750; South Carolina, $1,200; Virginia, $1,250; Arkansas' 
Georgia, and Oregon, $1,500; Massachusetts, $2,000 (applying only 
to income from professions, employment, trade, or business), and 
New York, $2,500. In Tennessee no exemption is allowed and in 
New Hampshire only $200, but these States confine the tax to income 
from intangibles. Thus the exemption in the District bill, $1,000 
for an unmarried person, is the most common. 

To a married person living with husband or wife New Hampshire 
allows an exemption of $200; Oklahoma, $1,500; Delaware, Missouri, 
North Carolina, North Dakota, Utah, and Vermont, $2,000; South 
Carolina, $2,200; Arkansas, Idaho, Illinois, Massachusetts, Oregon, 
$2,500, which is the same as that in the District bill; Virginia, $2,800; 
Georgia and Mississippi, $3,500; and New Fork, $4,000. 

Wisconsin allows no exemptions in computing taxable income, but 
grants a reduction in tax of $8 to a single person and $1 i .o0 to a head 
of a family. The practical result of this method is to apply the 
exemption against the lowest block of income, whereas in the other 
States it is allowed, in effect, against the highest block. To illustrate, 
an unmarried person having a net income of $50,000 under the pro¬ 
posed District law would have a personal exemption of $1,000, making 
the amount of $19,000 in excess of $30,000 taxable at 4 per cent. 
The exemptions of $1,000 being equal to a reduction in tax of $40. 
Under the Wisconsin method the entire amount or $20,000 in excess 
of $30,000 would be taxed and a credit of only $8 granted. 

Allowances for dependents generally run from $200 to $400, 
although there are some exceptions. In the States exemptions are 
somewhat less than in the Federal law. The 1928 revenue act, now 
in force, allows $1,500 for a single person and $3,500 for a head of a 
family or a married person living with husband or wife, and $400 for 
each dependent. In this connection it is interesting to note that the 
revenue bill of 1932 now before Congress contemplates reducing the 
exemptions for a single person to $1,000 and for a head of a family or 
a married person to $2,500, but leaves the credit for dependents at 
$400. 

State income tax—personal exemptions 


State 

Single 

individual 

Married 
or head 
of family 

Allowance 

for 

dependents 

Arkansas_____ 

$1,500. 00 
1,000. 00 

1, 500. 00 

1, 000. 00 

1, 000. 00 
i 2, 000. 00 

,500.00 
2,000.00 
3, 500.00 
2,500.00 

2, 500. 00 
i 2, 500. 00 

3. 500. 00 
2,000. 00 

2 200. 00 

$400.00 

Delaware__ 

200.00 

Georgia..... .... 

400. 00 

Idaho...... 

300.00 

Illinois ______ 

300.00 

Massachusetts_____ 

i 250. 00 

Mississippi..... 

1,000. 00 
1,000.00 

2 200. 00 

400. 00 

Missouri.... 

200. 00 

New Hampshire.... 

2 None. 

New York....... 

2, 500. 00 
1, 000. 00 
1,000.00 
750. 00 

4, 000. 00 

400.00 

North Carolina..._. 

2,000. 00 
2, 000. 00 
1,500.00 
2, 500. 00 
2, 200. 00 

2 None. 

200. 00 

North Dakota.____ __ 

300. 00 

Okahoma..... 

750. 00 

Oregon........ 

1, 500. 00 
1, 200. 00 

2 None. 

400 00 

South Carolina____ 

400 00 

Tennessee......... 

2 None. 

Utah....... 

1,000. 00 
1,000.00 
1,250.00 

3 8.00 
1,000.00 

2,000.00 
2,000. 00 
2,800.00 

3 17. 50 
2, 500. 00 

400 00 

Vermont..... 

250. 00 
400.00 
3 4.00 
300.00 

Virginia...... 

Wisconsin..... 

Proposed for District.. ... 



1 These exemptions apply to income from professions, employment, trade, or business. Exemptions 
vary for other classes of taxable income. 

2 Tax limited to income from intangibles. 

* Exemptions are allowed in form of deductions from tax. 
































TAXATION” OF INCOMES, ETC. 


31 


The determination of the personal exemptions involves sociological 
considerations. The relation of income to necessary living costs is 
fundamentally the controlling factor, but no formula can be laid down 
for amounts to be allowed to the different classes of taxpayers. At 
best the allowance is arbitrary. Incomes range from those of wage 
earners to those of persons of great wealth. To tax persons earning 
only a livelihood would be neither productive of any considerable reve¬ 
nue nor economically expedient. On the other hand, persons with 
small incomes in excess of the necessities of life should contribute some¬ 
thing, not so much for the revenue but for the encouragement of civic 
interest in the Government. As incomes increase the tax rates should 
be progressively adjusted to produce a larger return. If an income 
tax is enacted for the District, it is not unreasonable, in the opinion 
of the bureau, to ask an unmarried individual to begin to pay a tax 
toward the support of the local government when his net income 
exceeds $1,000, or a married man where his net income exceeds 
$2,500 plus an exemption of $300 for each dependent. It is felt, 
however, that an unmarried person who is the head of a family should 
be allowed the same exemption as a married person, and a recom¬ 
mendation to this effect is made later in this report in connection 
with the discussion of section 9 of the pending bill. 

VIII. ESTIMATED REVENUES 

The purpose of the proposed District income tax law as expressed 
by the House select committee on District fiscal relations is twofold, 
to substitute an income tax for the present tax on intangible property, 
and to produce additional revenue for the municipal government. 
Based on the 1931 figures, the repeal of the present intangibles law 
would reduce receipts from general property taxes nearly $2,750,000. 
In its report on page 18 the committee stated, if a reasonable income 
tax is adopted, the amount of revenue obtained would exceed that 
from the tax now imposed on intangibles by not less than $750,000. 
This would make the estimated receipts from the measure about 
$3,500,000. 

The next matter for consideration is the source of this revenue. 
As proposed, the tax is on incomes of individuals (including fiduci¬ 
aries) and corporations (including associations organized for profit). 
Contrary to the situation under the Federal law, the District would 
obtain the bulk of the revenue from individuals. A table is presented 
below compiled from statistics for the years 1925 to 1929 on individual 
Federal taxpayers in the District of Columbia, arranged by income 
groups. Most of the basic data for the table have been taken from 
the annual statistical reports of the United States Bureau of Internal 
Revenue. 


Estimated revenues from proposed income tax for District of Columbia based on average personal exemption of $2,000 


32 


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34 


TAXATION OF INCOMES, ETC. 

The net incomes in the table are subject to certain compensating 
adjustments. The bill exempts from taxation dividends received 
from businesses in the District paying the proposed corporation in¬ 
come tax, and also from businesses now subject to the gross earnings 
or gross receipts tax. Individual net incomes shown in the table 
include such dividends and are to that extent overstated.* The over¬ 
statement because of these dividends would be more than offset by 
taxes collected from nonresidents on incomes derived from sources 
within the District. (The pro rata incomes of this class of taxpayers 
were not reported by the Federal Government as applicable to the 
District, and so could not be included in the table.) 

Net income in the above table means gross income less allowable 
deductions, but exclusive of the credit granted for personal exemp¬ 
tions. From these figures personal exemptions must be deducted to 
arrive at the net taxable incomes under the pending bill. In the 
District bill the general average of all exemptions for both single 
and married persons will be about $2,000. On the 43,000 Federal 
tax returns filed in the District the rates in the bill were applied to 
the amount in each income block in excess of the exemption and the 
result multiplied by the number of returns. In addition to the total 
Federal returns, it is estimated about 15,000 more returns would be 
filed under the District bill because of the lower exemptions. The 
net income in these additional returns will fall in the lowest bracket, 
subject to tax at 1 per cent. With $2,000 as the average personal 
exemption, the annual revenue from the individual tax at the rates 
prescribed in the bill would be $3,178,000, a figure conservative for 
normal times. If the rates ranging from 1 to 4 per cent are used, 
the yield on individual taxes would be a little over $2,426,000. 

The average annual total net income for the years 1925 to 1929 
of corporations taxable under the bill was $14,864,127, and the aver¬ 
age number reporting taxable income was 748, making the average 
net income per corporation $19,870. Statistics are not available 
showing the gradation of corporation incomes in the District so that 
the portion subject to each rate is not definitely known. If incomes 
of these corporations were taxable at rates for the general average 
($19,870, which would be the minimum) $326,000 would be realized; 
if at the maximum rate of 5 per cent, the amount would be about 
$743,000. Since the entire group would be taxable at neither mini¬ 
mum nor maximum rates, but somewhere between, it is estimated 
that the corporation taxes would normally produce about $500,000. 
Kates of 1 to 4 per cent would yield approximately $400,000. 

Under the bill the total revenues would be $3,678,000 and under 
the alternative plan $2,826,000. 

The income tax has at least one disadvantage, now being experi¬ 
enced by the Federal Government. In prosperous years large reve¬ 
nues are produced, but during lean years, when incomes are smaller, 
the revenues sharply decline. The figures in the table are based on 
an era of prosperity. Since 1929 taxes have fallen off, taking into 
consideration the country as a whole. The Bureau of Internaf Rev¬ 
enue in its preliminary report on Statistics of Income for 1930 makes 
the following comments relative to Federal returns: 

The returns of individuals reporting income for 1930 filed to August 31, 1931, 
numbered 3,376,552, of which 1,946,675 were taxable and 1,429,877 nontaxable. 
The aggregate net income was $17,220,753,620 &nd the tax liability $473,689,563. 


TAXATION OF INCOMES, ETC. 


35 


As compared with the returns filed for the previous year to August 31, 1930, 
die number for 1930 decreased by 574,705, or 14.54 per cent. The total net 
income shows a decrease of $7,073,856,119, or 29.12 per cent, and the tax liability 
decreased by $517,247,417, or 52.20 per cent (p. 2). 

The number of corporation income-tax returns for 1930 filed to August 31, 
1931, is 498,110, of which 214,412 show net income amounting to $5,627,312,995 
and income tax of $618,246,431. Compared with the returns for 1929 filed to 
August 31, 1930j these figures show a decrease in net income of $4,633,994,146 
and a decrease in tax of $428,739,406. In comparing the tax liability in the 
1930 returns with the 1929 returns, attention is directed to the tax rate of 12 
per cent for 1930, which for 1929 was temporarily reduced to 11 per cent by the 
joint resolution of Congress approved by the President on December 16, 1929 
(p. 4). 

The revenue potentiality of an income tax in the District can not 
be definitely ascertained until returns have been filed and examined. 
The question of an income base was given careful consideration, in 
which the average of the 5-year period 1925 to 1929 was selected as 
representative of a normal year. During that period individual 
incomes steadily increased, culminating, however, in 1929. At the 
same time there was a slight decrease in the incomes of corporations 
which would be taxable under the pending bill. Plad the incomes for 
the single year 1929 been used as a basis, the estimated revenue 
would have been increased 10 per cent. As a conservative measure 
the lower figure was adopted. Because of the importance and 
stability of the Federal Government’s activities in the District of 
Columbia the fluctuation in incomes here is less than in the States. 
Thus tax revenues will not be diminished because of the depression 
to the same extent as elsewhere, although some allowance for shrink¬ 
age should be made. Figures are not yet available as to incomes in 
the District for 1931. But, likely, incomes for 1932 will n'ot exceed 
75 per cent of the amount of the 5-year average 1925 to 1929 shown 
in the table. Deducting 25 per cent leaves the estimated receipts 
from income taxes under the rates proposed in the bill at $2,759,000, 
and at the modified rates suggested about $2,019,000. 

This latter amount would be less than the tax received from 
intangible property this year, $2,547,042. The probable decrease in 
revenue might be considered an objection to an initial reduction in 
the rates contained in the bill. On the other hand, it may be stated 
first, that officials of the District government estimate the tax revenue 
from intangible property for the fiscal year 1933 will probably drop 
between $350,000 and $400,000, so that the probable net receipts 
from that tax will scarcely exceed the income tax revenue under the 
modified rates; second, that a permanent tax program should be 
based on normal times when the revenues from the reduced rates 
would exceed those derived from the present intangible tax; and 
third, that public utilities, not to be taxed under the bill, though now 
paying less than other classes of taxpayers in the District, might well 
be called upon to make additional contributions, the resultant amount 
being more than sufficient to offset the effect of reducing the rates in 
the pending bill. 

A statement of income tax collections by States is presented, indi¬ 
cating the ratio of the tax to the total revenue receipts. The figures 
in the table are based principally on the preliminary report, Financial 
Statistics of States, 1930, published by the United States Bureau of 
the Census, though certain additions have been made for collections 
of income taxes in States not reported in that publication. 


36 


TAXATION OF INCOMES, ETC. 


Ratio of income taxes to total revenue receipts in States , 1930 


State 

Total revenue 
receipts 

Income tax 

Per cent of 
income tax 
to revenue 
receipts 

Arkansas._. ...-. 

$24, 776,000 
115,179,000 

38. 921, 000 
15,499, 000 
35, 638, 000 

9, 230, 000 
90,179, 000 
69,182,000 
17, 071, 000 
50, 749,000 
13,135, 000 
11,098,000 
296, 509, 000 
46, 574, 000 
17, 697, 000 

39, 435, 000 
30, 369, 000 
21, 331, 000 
34, 223, 000 
13, 362, 000 
11,095,000 
42, 583, 000 
61, 094, 000 

$1, 202,000 

4. 85 

California....... 

i 4, 648,000 
2, 984, 000 
2, 853, 000 
627, 000 

( 2 ) 

( 2 ) 

682.000 

4. 04 

Connecticut..._...- 

7.67 

Delaware... .._. 

18.41 

Georgia___ ___.. 

1. 76 

Idaho .. _ ___ 


Illinois .. .... . ... .. 


Massachusetts...... 

.99 

Mississippi_ . ... __ ... 

1, 632, 000 
4, 609, 000 
441, 000 
635, 000 
40. 246, 000 

7, 257, 000 
481, 000 

9.56 

Missouri_ ___ . ___ 

9. 08 

Montana. ........ 

3. 36 

New Hampshire.....-.. ... 

5. 72 

New York______ 

13. 57 

North Carolina_______. . 

15. 58 

North Dakota........ 

2. 72 

Oklahoma..._... 

481, 000 
i 403, 217 

1. 22 

Oregon__ _ __ _ _ 

1.33 

South Carolina______ 

1,921, 000 
454,000 
( 2 ) 

( 2 ) 

4, 254, 000 

9, 831, 000 

9.01 

Tennessee_ .. ______ 

1.33 

Utah....... 

Vermont. ... .. . 


Virginia.. ..... 

9. 99 

Wisconsin.......... 

16.09 



1 Taxes for 1928. 

2 Income tax laws passed subsequent to 1930. 


The proposal of an income tax for the District of Columbia raises 
an interesting question as to the probability of persons changing their 
domiciles in order to avoid the tax, with the incidental loss of revenue. 
For purposes of discussion, the taxpaying public may be divided into 
three groups: Business firms, persons with incomes from professions 
and salaries, and persons deriving incomes from securities. While 
business corporations are influenced to some extent by tax ratios in 
communities, other factors such as good will, desirable locations for 
distribution, and demand for merchandise are the controlling con¬ 
siderations, so that probably a negligible number of corporations in 
the District would terminate their activities here solely because of an 
income tax law. As to professional and salaried persons who desire 
to continue their present occupations, changes in domicile are un¬ 
likely, because incomes earned within the District are taxable regard¬ 
less of residence. The remaining class, or those persons whose 
principal income is from securities, would ultimately benefit through 
the substitution of an income tax for the existing intangible tax. If 
a change is made, the tax on their net income would not exceed 5 per 
cent. As compared with this is the present intangible tax of one-half 
of 1 per cent on the full value of property, which, for securities earning 
a 5 per cent return, is equivalent to 10 per cent tax on net income of 
persons having the larger incomes from this source. As Maryland 
imposes a tax on stock of foreign corporations, corporation bonds, and 
mortgages on property, at a rate of 45 cents on each $100 of value, 
her tax is equivalent to about 9 per cent. In Virginia a similar tax 
of 50 cents is levied on bonds, notes, and other securities, which, 
being the same rate as the intangible tax now in the District, is 
equivalent to 10 per cent of the net income. 

In general, the experience of States has been that little, if any, 
shifting of population occurred as the result of adopting an income 










































TAXATION OF INCOMES, ETC. 37 

tax. For this reason the effect of changes of domicile has been 
ignored in the computation of estimated revenues. 

IX. ADMINISTRATION OF LAW 

Successful administration of an income tax law requires specially 
trained personnel. Many questions of a technical nature arise in the 
determination of the tax liability, particularly in connection with the 
larger returns. The reporting of transactions follows accounting 
practice, so that a thorough knowledge of that subject in addition to 
a knowledge of the income tax law is essential to the proper audit of 
the returns and the examination of the taxpayer’s books. The amount 
collected and the fairness of the administration of the law will depend 
largely upon the ability of employees engaged on the work. State 
laws usually place the administration in a central tax commission, or 
a commissioner, although in a few instances assessments are made by 
local officers under State supervision. In the several jurisdictions 
from which information was available the cost of collection varied 
from 1 to 4 per cent of the tax and even higher. The expense incurred 
is not necessarily a criterion of efficiency; in one case it may be at¬ 
tributable to unnecessary personnel or extravagances and in another 
to profitable intensive investigations. 

For the District of Columbia, the bill would place the administra¬ 
tion of the law in the office of the assessor, an arrangement which 
seems to be practicable, as that office could discharge the new func¬ 
tion with less expense than any other unit of the present organization 
or one specially created for that purpose. Ready access to the prop¬ 
erty records would greatly assist in the verification of transactions in 
real and personal property and possibly lead to the discovery of 
unreported income. 

It is understood that consideration is now being given by the 
assessor’s office, if the proposed estate tax and income tax laws are 
passed, to a plan for dividing the personal tax division into two 
sections, one section to handle the present tangible property tax, and 
the other the gross earnings taxes and the proposed estate and income 
taxes. Salary cost of administering the income and estate tax laws 
is estimated at $54,280. Of this amount, $8,400 may be deducted for 
persons now employed on intangible personal taxes, who would be 
transferred to the new work. The net additional outlay for the ad¬ 
ministration of both income and inheritance tax for the District would 
be as follows: 

Personnel 

2 senior auditors (grade CAF-11, $3,800) experienced in accounting and 
familiar with income and inheritance tax laws, for determining the tax 
liability and handling protests from additional assessments before 


Board of Personnel Tax Appeals_$7, 600 

3 assistant auditors (CAF-8, $2,900) to conduct investigations on more 

intricate returns under supervision of senior auditors_ 8, 700 

5 junior auditors (CAF-7, $2,600) to conduct investigations on less 

intricate returns under supervision of senior auditors_ 13, 000 

1 clerk (CAF-8, $2,900) to act as principal clerk of section for both income 

and inheritance taxes_ 2, 900 

5 clerks (CAF-4, $1,800) for filing returns, recording assessments, pre¬ 
paring notices, handling correspondence, etc- 9, 000 







38 


TAXATION OF INCOMES, ETC. 


2 stenographers (CAF-4, $1,800) for typing assessment letters, notices, 


etc_$3,600 

1 messenger (Cu-2, $1,080)_ 1, 080 


Total personnel cost_i_ 45, 880 

Printing and office supplies_ 3, 000 

Total annual cost_ 48, 880 

During the first year, in addition to the personnel cost, office equip¬ 
ment must be purchased. If the bill is enacted and made applicable to 
incomes earned after January 1, 1932, part of the funds will be needed 
shortly after July 1, 1932, for the purchase of equipment and for 
preliminary work prior to the time returns are filed. 


X. CHANGES RECOMMENDED IN PROPOSED LAW 

The substantive provisions of the bill are in line with modern 
thought on income taxes. For some time there has been a demand 
for another source of revenue as a substitute for the intangible tax. 
This demand would be met satisfactorily by an income tax. If the 
bill is enacted into law, however, several beneficial changes could be 
made. 

1. Additional Definitions 

Section 1 contains several definitions (lettered a to f,. inclusive) to 
aid in the interpretation of the law. In addition to those listed two 
others might be advantageously included: 

(g) The term “paid” shall mean “paid or incurred” and “paid or accrued” 
and the term “received” shall mean “received or accrued,” according to the 
method of accounting employed by the taxpayer. 

(h) The term “resident” in its application to individuals shall mean any 
natural person domiciled in the District of Columbia, and any other natural 
person who maintains a permanent place of abode therein in which he or she 
spends in the aggregate more than seven months of the taxable year: Provided , 
That Cabinet officers and persons in the service of the United States Government 
elected for a definite term of office shall not be considered as residents of the 
District of Columbia for the purposes of this section. 

The first of these definitions is recommended because most busi¬ 
nesses keep their accounts on the accrual basis, and should be required 
to report income in accordance with the books. 

The second suggestion is made to eliminate any uncertainty regard¬ 
ing persons to be taxed as residents of the District of Columbia. . 


2. Deduction for Interest Paid on Mortgage Indebtedness on 

Homes 

In general, income tax laws allow interest paid during the taxable 
year to be deducted from gross income. Section 2 (a), which relates 
to deductions from gross income, places the following restriction on 
interest: 

Sec. 2. The term “net income,” as herein used, shall mean the gross income 
less the following deductions: 

(a) All interest paid during the taxable year on indebtedness: Provided , That 
no interest shall be allowed as a deduction if paid on an indebtedness created 
for the purchase, maintenance, or improvement of property, or for the conduct 
of a business, unless the income from such property, or business, would be taxable 
under the provisions of this act. 









39 


TAXATION OF INCOMES, ETC. 

From the foregoing it is not clear whether interest paid on indebted¬ 
ness incurred in the purchase or improvement of a home is deductible. 
Presumably it is not, as in an economic sense income is not derived 
through the ownership of a home. Most States and the Federal 
Government recognize the salutory effects of encouraging home owner¬ 
ship, and therefore permit interest paid in financing homes to be 
deducted. Not to allow this expense in the District law would be 
an anomaly when the expense incurred to carry tax-exempt securities 
would be deductible as the section now stands. In the case of this 
latter type of transaction it is felt that the interest so paid out should 
not be deductible. To embody these changes, it is suggested that 
section 2 (a) be amended to read, as follows: 

Sec. 2. The term “net income” as herein used shall mean the gross income 
less the following deductions: 

(a) All interest paid during the taxable year on indebtedness, except on indebt¬ 
edness incurred or continued to purchase or carry obligations or securities the 
interest upon which is exempt from taxation under this act. 

3. Allowances for Estimated Losses on Bad Debts 

Section 2 (e) of the bill dealing with deductions from incomes of 
individuals provides: 

Sec. 2. The term “net income” as herein used shall mean the gross income 
less the following deductions * * *. (e) All worthless debts charged off 

within the taxable year. 

This provision follows the earlier Federal revenue acts, which 
required the taxpayer to write a claim out of his assets before a deduc¬ 
tion would be allowed. Most businesses, as a conservative measure,, 
set up reserves for bad debts, and in arriving at profit and loss the 
net addition to the reserve is deducted from gross earnings. Over 
a long period of years bad debts will equal the net additions to the 
reserve, but in any particular year the additions and write-offs may 
vary. Limitation of deduction to bad accounts actually charged off 
was annoying to the taxpayer and troublesome to the Bureau of 
Internal Revenue. Accordingly, the revenue act of 1921 permitted 
deductions to be claimed either on the basis of worthless debts charged 
off or on a reasonable addition to the reserve for bad debts. The 
practice has been followed in all succeeding Federal revenue acts. 
In view of the advantage of having the Federal and District laws 
uniform in this respect, it is suggested that the language of section 
2 (e) be changed to read as follows: 

Sec. 2. The term “net income” as herein used, shall mean gross income less 
the following deductions: 

Debts ascertained to be worthless and charged off within the taxable year, 
or, in the discretion of the assessor, a reasonable addition to a reserve for bad 
debts; and when satisfied that a debt is recoverable only in part, the assessor may 
allow such debt to be charged off in part. 

Five States follow the Federal act in this respect—Connecticut, 
California, Idaho, Oklahoma, and Utah. 

Under section 3 relating to deductions from corporate income, 
paragraph (f) containing language identical with section 2 (e) should 
be changed in a similar manner. 


40 TAXATION OF INCOMES, ETC. 

4. Enumeration of Items Not Deductible 

In a comprehensive income-tax law an almost endless list of sub¬ 
jects exists for which special provision should be made. For the most 
part the proposed law follows the Federal and State statutes in respect 
to the enumeration of items to be included in gross income, and items 
deductible therefrom. No mention is made of items that are not 
deductible, such as personal expenses, capital investments, rent and 
insurance on homes, and so forth. In reporting income the average 
taxpayer is inclined to claim all that is not specifically denied. For 
this reason provisions are found in the Federal and almost every 
State income-tax law specifically prohibiting these classes of items 
as deductions. To avoid any confusion in the filing of returns, 
especially as a new class of taxpayers is involved, it is recommended 
that the following paragraph, taken from the draft of the personal 
income-tax act prepared in 1921 for the National Tax Association 
by the committee in charge of formulating a model system of State 
and local taxes, be added in section 2 as paragraph (j): 

Items not deductible .—In computing net income no deduction shall in any case 
be allowed in respect of—• 

(1) Personal, living, or family expenses. 

(2) Any amount paid out for new buildings or for permanent improvements 
or betterments, made to increase the value of any property or estate. 

(3) Any amount expended in restoring property for which an allowance is or 
has been made. 

(4) Premiums paid on any life-insurance policy covering the life of any officer 
or employee or of any individual financially interested in any trade or business 
carried on by the taxpayer, when the taxpayer is directly or indirectly a bene 
ficiary under such policy. 

5. Time Limit on Losses 

Under the bill, when the price or value of property has decreased 
sufficiently, a taxpayer might find it to his advantage to sell such 
property shortly before the close of a taxable year and buy it back 
again after the beginning of the next year, and by this means get the 
benefit of an allowable deduction for income-tax purposes. This type 
of transaction is particularly feasible in the case of securities. In 
order to prevent the practice with its attendant loss of revenue, the 
Federal law contains a provision prohibiting a taxpayer (other than 
one in the trade or business of buying and selling securities) from 
claiming as a deduction any loss realized from a sale of securities 
which is shortly followed or has been recently preceded by a purchase 
of substantially identical property. The position of the Federal 
Government could be followed in the District law by extending sec¬ 
tions 2 and 3 to cover the situation. 

Sec. 2 (k). In the case of a loss claimed to have been sustained in any sale or 
other disposition of shares of stock or securities where it appears that within 
thirty days before or after the date of such sale or other disposition the taxpayer 
has acquired (otherwise t^an by bequest or inheritance) or has entered into a 
contract or option to acquire susbtantially identical property, and the property 
so acquired is held by the taxpayer for any period after such sale or other dispo¬ 
sition, no deduction for the loss shall be allowed. If such acquisition or the con¬ 
tract or option to acquire is to the extent of part only of substantially identical 
property, then only a proportionate part of the loss shall be disallowed. 

Sec. 3 (h). In the case of a loss claimed to have been sustained in any sale or 
other disposition of shares of stock or securities where it appears that within 
thirty days before or after the date of such sale or other disposition the taxpayer 


TAXATION OF INCOMES, ETC. 


41 


has acquired (otherwise than by bequest or inheritance) or has entered into a 
contract or option to acquire substantially identical property, and the property 
so acquired is held by the taxpayer for any period after such sale or other dispos¬ 
ition, no deduction for the loss shall be allowed, unless the claim is made by a 
corporation regularly dealing in stocks and securities and with respect to a trans¬ 
action made in the ordinary course of its business. If such acquisition or the 
contract or option to acquire is to the extent of part only of substantially identical 
property, then only a proportionate part of the loss shall be disallowed. 

6. Use of Inventories in Determining Income 

Section 4, which deals with the basis of computing net income, 
makes no reference to inventories. Where production, purchase, or 
sale of goods are involved, the increase or decrease in profit can not 
be accurately measured without the use of inventories. For tax¬ 
payers engaged in merchandising, trading profit is determined by 
deducting from gross sales the cost of goods sold, the latter being 
ascertained by adding to the value of the inventory on hand at the 
beginning of the year the cost of goods purchased or produced during 
the year, and deducting from the total the inventory on hand at the 
end of the year. It is also essential that inventories be taken in 
accordance with standard practices. To effect these changes, the 
following paragraph is suggested as an addition to section 4: 

Whenever in the opinion of the assessor the use of inventories is necessary in 
order to determine clearly the income of any taxpayer, inventories shall be taken 
by such taxpayer upon such basis as the assessor may prescribe as conforming 
as nearly as may be to the best accounting practice in the trade or business and 
as most clearly reflecting the income. 

7. Computation of Gains and Losses 

The manner of determining gain or loss on a transaction is disposed 
of in the bill merely by the general provision that gross income shall 
include profits from dealings in real and personal property. Questions 
arising in this connection are so important that adequate provision 
should be made. Some of the more troublesome matters involve the 
method of determining the value of property; proper adjustment for 
items chargeable to capital account; recognition of reduction in value 
because of exhaustion, wear and tear, obsolescence, and amortization; 
in the case of sales of stock, adjustment for distributions previously 
made; method of valuing property (other than money) received; and 
the basis for computing realized income on instalment sales. The 
present Federal revenue act drafted after years of experience con¬ 
tains several pages on these subjects. So much detail would perhaps 
unduly lengthen the District law. In order to make the law concise, 
and at the same time susceptible of practical administration, the 
situation can be covered by making the Federal law applicable to 
computations of gain or loss except where otherwise specified. This 
suggestion may be carried out by adding the following to section 5: 

In all cases involving the sale or other disposition of property gain or loss shall 
be determined in accordance with the procedure of the Federal revenue act in 
effect at the time the return is filed where not inconsistent with the provisions of 

this act. 


42 


TAXATION OF INCOMES, ETC. 

8. Filing of Returns According to Business Year 


Section 8 of the bill requires that all returns be filed during the 
month of March following the close of the taxable year. Such an 
arrangement would not be satisfactory for incomes computed on an 
annual basis other than a calendar year, as is permitted by section 4. 
If a taxpayer has a fiscal year ending April 30, under the bill he would 
have 11 months in which to file his return, whereas taxpayers on a 
calendar-year basis would have not to exceed 3 months. For this 
reason it would seem better to follow the Federal practice of requiring 
fiscal-year returns. Since March is the third month, taxpayers keep¬ 
ing their accounts on a fiscal-year basis ought to file returns during 
the third month after the close of their particular business year. 
This arrangement can be effected by adding a sentence at the end of 
section 8 as follows: 

Statements made on the basis of a fiscal year shall be filed during the third 
month following the close of the fiscal year: Provided , That in no case shall 
income earned prior to January 1, 1932, be taxed. The assessor shall make such 
rules and regulations as are necessary to carry this provision into effect. 

If the above suggestion is adopted, the following sentence should 
be added to section 12 to make it conform to section 8 as revised. 

Except the balance of taxes payable on income for a fiscal year shall be paid 
during the ninth month following the close of the fiscal year. 

9. Penalty for Delinquent Returns 

The proposed bill contains no provision for penalties other than 
charging interest to taxpayers who are delinquent, or who fail to 
file returns. In administering an income tax law, taxing authorities 
should have some more effective means of compelling the filing of 
returns on time. The personal property tax for the District of 
Columbia now provides a penalty of 20 per cent and the Federal 
internal revenue act 25 per cent for delinquent returns. In both 
cases these penalties are added and collected in the same manner as 
the tax. The need for such provision can be met by adding the 
following language to section 8: 

If any person, subject to this act, shall fail to make and deliver a sworn return 
to the assessor’s office within the time prescribed by law, a penalty of 20 per 
cent of the tax shall be added, except that w'hen a return is filed after such time 
and it is shown that the failure to file was due to reasonable cause and not to 
willful neglect, no such addition shall be collected. Any penalty imposed shall 
be collected at the same time and in the same manner as a part of the tax, unless 
the tax has been paid before the discovery of the neglect, in which case the amount 
so added shall be collected in the same manner as the tax. 

10. Increased Exemption for Head of Family 

Section 9 (a), (b), and (c) provides that the following items shall 
be exempt from taxation under this act: 

(a) The income of a single person, or a married person not living with husband 
or wife, up to but not in excess of $1,000. 

(b) The income of a mairied perso i living with husband or wife up to but not 
in excess of $2,500: Provided, That if a husband and wife make separate returns 
or have separate incomes the exemption for each shall be $1,000. 

(c) Three hundred dollars for each dependent child under 18 years of age, and 
for each additional person who is actually supported by and entirely dependent 
upon the taxpayer for his support. 


43 


TAXATION OF INCOMES, ETC. 

The foregoing provisions allow a personal exemption of only 
$1,000 to a single person who maintains a household and exercises 
family control over children or others, plus $300 for each dependent. 
The Federal income tax law and the laws in the States (with one 
exception) grant the same exemption to the head of a family as to 
married persons, on the theory that their costs of living are com¬ 
parable. For this reason an exemption of $2,500 might appropriately 
be allowed in the case of a single person who is head of a family. 

No mention is made in the bill as to what allowance is permitted 
when a change in status occurs. As a general rule, the credit for 
dependents is determined by the situation on the last day of the year, 
and where the marital status or the position as head of a family 
changes the personal exemptions are pro rated over the year. This 
practice seems equitable and worthy of adoption. 

In order to effect the foregoing changes, it is suggested that sections 
9 (a), (b), and (c) be amended to read as follows: 

The following items shall be exempt from taxation under this act: 

(a) The income of a single person or a married person not living with husband 
or wife, up to but not in excess of $1,000; the income of a married person living 
with husband or wife, or a single person who is the head of a family, up to but not 
in excess of $2,500: Provided , That if a husband and wife make separate returns 
or have separate incomes the exemption for each shall be $1,000; plus $300 for 
each dependent child under eighteen years of age, and for each additional person 
(other than husband or wife) who is actually supported by and entirely dependent 
upon the taxpayer for his support. 

( b ) The credit for dependents shall be determined by the status of the taxpaj^er 
on the last day of his taxable year. The personal exemptions (other than those 
for dependents) allowed by subsection (a) of this section shall, in case the status 
of a taxpayer changes during his taxable year, be the sum of an amount which 
bears the same ratio to $1,000 as the number of months during which the tax¬ 
payer was single bears to 12 months, plus an amount which bears the same ratio 
to $2,500 as the number of months during which the taxpayer was a married per¬ 
son living with husband or wife, or was the head of a family, bears to 12 months. 
For the purposes of this paragraph a fractional part of a month shall be disre¬ 
garded unless it amounts to more than half a month, in which case it shall be 
considered as a month. 

(c) In the case of an individual who dies during the taxable year, the personal 
exemption and the credit for dependents shall be determined by his status at the 
time of his death, and in such case full credits shall be allowed to the surviving 
spouse, if any, according to his or her status at the close of the taxable year. 


11. Clarification of Persons Taxable 

• 

The present intangible property tax applies to every person main¬ 
taining a place of abode in the District of Columbia on January 1 
of each year and for three months or more prior thereto, except 
Cabinet officers and persons in the service of the United States 
Government elected for a definite term of office (45 Stat. 1227). 
Exemption of these classes of persons is granted to avoid any duplicate 
taxation of their intangible property in the District, and in the States 
of their domicile. Under the bill the intangible tax would be super¬ 
seded by an income tax, section 10 of which reads in part as follows, 
beginning on line 23, page 12: 

A like tax is hereby imposed and shall be levied, collected, and paid annually 
at the rate specified in this section upon and with respect to the entire net income 
as herein defined, except as otherwise herein provided, from all property owned 
and from every business, trade, profession, or occupation carried on in the District 
of Columbia by persons not residents of the District. 


121418—32-4 



44 


TAXATION OF INCOMES, ETC. 

From the foregoing it is clear that salaries of persons working in 
the District, including employees in private enterprises, persons in 
the military and naval forces, and Federal employees would be taxed, 
though they may reside elsewhere. A question has arisen whether 
Congressmen and Cabinet officers, whose compensation is not subject 
to State income taxes, have occupations carried on in the District 
of Columbia, so as to render them liable for the District income taxes 
imposed upon nonresidents. As the bill now stands, the language 
in this section might require judicial interpretation. This uncertainty 
can be removed by adding either of the following provisos to section 
10, according to the intent of Congress: 

Provided, That compensation received from the Federal Government by cabinet 
officers, judges of the courts of the United States, and persons elected for a defi¬ 
nite term of office shall not be subject to tax under this act. 

or 

Provided, That all persons receiving compensation from the United States, 
whose principal office in connection therewith is in the District of Columbia, 
shall be taxed on such income. In the case of Presidents of the United States 
and judges of courts of the United States, taking office after the enactment of 
this act, the compensation received as such shall be included in gross income. 

12. Reciprocity with States 

The bill contains no provision for adjustment of credits for income 
taxes where the District and a State may tax the same income. In 
the absence of such provision, a nonresident having income from 
sources within the District might be taxed here, and again in the 
State of his domicile; and if each jurisdiction is in a position to enforce 
its tax, either through his property or person, a taxpayer might be 
compelled to pay both taxes. In order to eliminate this situation, 
it is suggested that an amendment be added to section 10 providing 
for reciprocity with States: 

Whenever a nonresident taxpayer of the District of Columbia has become liable 
to income tax to the State where he resides upon his net income for the taxable 
year, derived from sources within the District of Columbia and subject to taxa¬ 
tion under this act, the assessor shall credit the amount of income tax payable 
by him under this act with such proportion of the tax so paj^able by him to the 
State where he resides, as his income subject to taxation under this act bears to 
his entire income upon which the tax so payable to such other State was imposed: 
Provided, That such credit shall be allowed only if the laws of said State (1) grant 
a substantially similar credit to residents of the District subject to income tax 
under such laws, or (2) impose a tax upon the persohal income of its residents 
derived from sources within the District, and exempt from taxation the personal 
incomes of residents of the District. No credit shall be allowed against the 
amount of the tax on any income taxable under this act which is exempt from 
taxation under the laws of such other State. 

This provision has been taken from section 363, chapter 691, of the 
New York personal income law of 1920. 

13. Allowance for Net Losses of Former Years 

Section 10 of the bill, beginning on line 5, page 13, reads as follows: 

The tax herein provided shall be first levied, collected, and paid in the year 
1933 upon and with respect to the taxable income for the calendar year 1932. 

Each year after the filing of the first sworn statement, a similar 
statement is required to be filed. Only a single calendar or fiscal 
year, as the case may be., is recognized for the determination of the 


TAXATION OF INCOMES, ETC. 


45 


tax. For a time the Federal income tax laws similarly treated each 
year as complete itself. In administering these laws officials came to 
realize that the limitation of the taxable period to a year was not 
entirely equitable. A corporation might have large earnings in one 
year that would be entirely wiped out by losses in the'succeeding year, 
or vice versa, so that the net result would be a loss. 

Under the revenue act of 1928 a taxpayer is allowed to recoup losses 
over two years. By this provision a deficit in one year may be carried 
over to the first, and if necessary, the second taxable year following, 
and may be claimed as an offset against income in those years before 
the tax rates are applied to the remaining balance. As this practice 
seems equitable, the following amendment is suggested for inclusion 
in the bill under section 5: 

If, for any taxable year, it appears upon the production of evidence satisfactory 
to the assessor that a taxpayer has sustained a net loss, the amount thereof 
shall be allowed as a deduction in computing the net income of the taxpayer 
for the succeeding taxable year, and if such net loss is in excess of such net income 
(computed without such deduction), the amount of such excess shall be allowed 
as a deduction in computing the net income for the next succeeding taxable 
year; the deduction in all cases to be made under regulations prescribed by the 
assessor. 

In reporting the revenue bill for 1932, the Waj^s and Means Com¬ 
mittee recommended that the net loss provision be confined to a 
deduction for the year immediately succeeding, cutting off the right 
to a deduction for a second year. The House of Representatives 
changed the recommendation so that until 1935 no deduction should 
be allowed for a loss of a prior year. In commenting on this action, 
Secretary of the Treasury Mills stated that for many years it has 
been recognized in the case of business enterprises that the treat¬ 
ment of each year as a unit without reference to what happened in 
other years works a hardship. He pointed out that if no recognition 
were given to losses for particular years, business enterprises would 
actually pay tax on more income than they had, because the income 
over a series of years reflects the combined effect of gains and losses 
for those years. 

14. Nontaxability of Dividends from District Corporations 

Section 9 (d) reads as follows: 

The following items shall be exempt from taxation under this act: 

Dividends received from national banks and mutual savings banks. 

Apparently this provision would exempt dividends from national 
banks and mutual savings banks throughout the United States. 

No reason is perceived why dividends on shares of stock of national 
banks or mutual savings banks in other jurisdictions should be 
exempt, nor why a distinction should be made between these banks 
and trust companies, incorporated savings banks, and building and 
loan associations. Accordingly, it is suggested that this section be 
changed to read as follows: 

Sec. 9. The following items shall be exempt from income taxation by this 
act * * *. 

(d) Dividends received from national banks, trust companies, mutual or 
incorporated savings banks, and building and loan associations in the District 
of Columbia. 


4G TAXATION OF INCOMES, ETC. 

15 . Exclusion of Life Insurance from Gross Income 

Section 9 (g) of the bill provides: 

The following items shall be exempt from taxation under this act: * * * 

(g) All insurance received by anv person in payment of a death claim by any 
insurance company, fraternal-benefit society, or other insurer, except insurance 
paid to a corporation or to a partnership upon policies on the lives of its officers, 
partners, or employees: Provided , That interest on premiums paid to the insured 
or accumulated for him before the maturity of any insurance policy shall not be 
exempt from taxation. 

The bill proposes to exempt the proceeds of life insurance paid on 
the death of the insured to individual beneficiaries and estates, but 
not insurance paid to corporations or partnerships upon the lives of 
officers, partners, or employees. All States exempt the proceeds of 
policies paid to individual beneficiaries and estates, but they are not 
uniform in respect to payments to partnerships and corporations. 
Arkansas, Missouri, North Carolina, North Dakota, Oklahoma, South 
Carolina, and Tennessee tax insurance receivable by business corpo¬ 
rations, while the following States exempt this class of transactions: 
California, Connecticut, Georgia, Idaho, Mississippi, Oregon, Utah, 
Vermont, Virginia, and Washington. To this latter class may be 
added the Federal Government. (See revenue act of 1928, sec. 22.) 

In recent years the tendency has been to permit taxpayers, whether 
individuals, partnerships, or corporations, to exclude such insurance 
from gross income, the exemption resting on the recognition that 
insurance is a desirable institution and should be encouraged by the 
States. Accordingly, it is suggested that amounts received under 
life-insurance policies be exempted whether the beneficiary is an 
individual or business firm. 

Repayments to the insured are treated differently from death-claim 
payments to the beneficiaries. In most jurisdictions the amount 
received by the insured as a return of premiums during the term of 
his contract is exempted, but the excess is taxed in the year received. 
The course is dictated probably by the recognition that the return 
premiums constitute repayments of capital, and the excess represents 
earnings which like other forms of income should be taxed. As the 
bill is silent on the treatment of the proceeds of annuities or endow¬ 
ment insurance contracts, it is recommended that a separate provi¬ 
sion be inserted providing for the exemption of amounts received 
equal to the total premiums paid, but taxing the excess. Giving 
effect to these recommendations section (g) would read as follows: 

Sec. 9. The following items shall be exempt from taxation under this act: 

(g) Amounts received under a life-insurance contract paid by reason of the 
death of the insured, whether in a single sum or in installments (but if such 
amounts are held by the insurer under an agreement to pay interest thereon, 
the interest payments shall be included in gross income). Amounts received 
(other than amounts paid by reason of the death of the insured and interest 
payments on such amounts) under a life-insurance endowment, or annuity con¬ 
tract, but if such amounts (when added to amounts received before the taxable 
year under such contract) exceed the aggregate premiums or consideration paid 
(whether or not paid during the taxable year) then the excess shall be included 
in gross income. 

The foregoing language conforms to the relevant portions of the 
Federal revenue act of 1928, section 22. 


47 


TAXATION OF INCOMES, ETC. 

16. Uniformity of Period for Payment of Taxes 

Section 14 provides: 

. ff either of said tax installments shall not be paid within ten days after becom¬ 
ing due, the said tax shall be declared delinquent and there shall be imposed a 
penalty of 1 per centum a month upon the amount of the tax delinquent for 
the period of such delinquency. 

4 he property tax laws in the District allow semiannual payments 
to be made during the entire months of September and March. As 
uniformity of collection periods is desirable from an administrative 
standpoint it is recommended that this section be changed to conform 
to the existing practice. 

If either of said installments shall not be paid upon becoming due, that part of 
the tax so payable shall be declared delinquent and there shall be imposed a 
penalty of 1 per centum a month thereon for the period of such delinquency. 

17. Persons Required to File Returns 

Section 8 provides as follows: 

Every person, as herein defined, shall, during the month of March, 1933, file 
with the assessor of the District of Columbia a sworn statement in such form as 
the said assessor shall prescribe, setting forth such facts and information relating 
to the gross and net income of the taxpayer as said assessor may require in order 
to fully carry out the provisions of this act. Each year, following the filing of 
the first sworn statement, a similar sworn statement shall be filed with the 
District assessor during the month of March. 

Since the term “person” is defined by section 1 to “mean and 
include every individual,” under this section every resident of the 
District of Columbia would be required to file a return, whether or 
not he had any net income. If the proposed law were to be literally 
followed, more than 400,000 persons would annually report through 
returns, though less than 60,000 would pay any tax. The scope of 
the requirement is too broad and would increase the cost of administer¬ 
ing the law without serving any useful purpose. Experience of the 
Federal Government has shown that it is desirable to prescribe mini¬ 
mum gross and net incomes, below which returns are not required. 
In line with this practice, it is suggested that section 8 be changed to 
read in part as follows: 

(a) The following individuals, whether residents or nonresidents, having income 
subject to taxation under this act, shall each make under oath, a return stating 
specifically the items of his or her gross income, and the deductions and credits 
allowed by this act. 

(1) Every individual having a net income for the taxable year of SI,000 or 
over, if single, or if married and not living with husband or wife; 

(2) Every individual having a net incom? for the taxable year of $2,500 or 
over, if married and living with husband or wife; and 

(3) Every individual having a gross income for the taxable year of $5,000 or 
over, regardless of the amount of his net income. 

(b) If the taxpayer is a minor or a person under legal disability, the return shall 
be made by the guardian, committee, duly authorized agent or other person 
charged with the care of the person or property of such taxpayer. 

(c) Everv corporation, trust, or estate, joint-stock company, partnership, or 
association organized for profit (except those herein specifically exempted), 
shall make a return, stating specifically the items of its gross income and the 
deductions and credits allowed by this act. The return shall be sworn to by the 
president or other principal officer and by the treasurer or assistant treasurer. 


48 


TAXATION OF INCOMES, ETC. 

18. Need for Statute of Limitations 

Modern business conditions demand that liabilities and rights be 
definitely established with reasonable promptness. As the income tax 
recurs each year, an accumulation of undetermined assessments 
together with interest thereon might cause financial embarrassment to 
anyone called upon for additional taxes after a long period. Also 
when years have elapsed it is more difficult to ascertain facts so that a 
limit should be placed on stale claims. The beneficial effect of a 
statute of limitations applies to the Government as well as the tax¬ 
payer. Three years seems to be a reasonable period beyond which the 
Government should not assess additional taxes, nor the taxpayer 
claim refund for overpayment. Section 15 may be extended to 
cover this situation by adding: 

Except in the case of a willfully false or fraudulent return with intent to evade 
the tax, the amount of tax due under any return shall be determined by the 
assessor within three years after the return was made and no proceeding in court 
without assessment for the collection of such taxes shall be begun after the 
expiration of such period. In the case of a willfully false or fraudulent return or 
where no return has been filed the amount of tax due may be determined and 
collected at any time. 

If within three years after the payment of taxes it appears from the records of 
the assessor that moneys have been erroneously or illegally collected from any 
taxpayer or other person, pursuant to the provisions of this act, the assessor shall 
have power upon making a record of his reasons therefor in writing, to cause such 
moneys to be refunded. 

19. Records of Income To Be Kept 

As the income tax is predicated largely on the self-declaration plan 
tax assessors need a means of verifying returns. To secure this check, 
nearly all States have followed the Federal law requiring that records 
be kept that will properly reflect income. In order that the adminis¬ 
tration of the law may be complete in this respect, the following 
paragraph might be added in section 17: 

Every person liable to any tax imposed under this act, or for the collection 
thereof, shall keep such records, render under oath such statements, make such 
returns, and comply with such rules and regulations as the assessor may from time 
to time require. 

20. Specification of Appeal Procedure 

Section 18 treating of protests against assessments provides: 

Should any person upon whose income a tax has been imposed feel aggrieved 
or claim error in the amount of the tax, he shall be permitted to file a protest 
with the board of personal tax appeals of the District and request a hearing at 
such time and place as the said board may designate. 

Should it appear to said board that an error in computation of said tax has 
been made, or that an error was made in the return of the person taxed, said 
board shall immediately make such a readjustment as will correct such error, to 
the end that a correct amount of tax be imposed. 

The bill contains no definite procedure as to the time and manner 
of taking appeals from assessments. Administration of the law 
could be facilitated by specific reference to these matters, as indicated 
in the following paragraph, which would be substituted for section 18. 

The board of personal tax appeals of the District of Columbia shall have 
power to hear and determine controversies arising in connection with taxes im¬ 
posed under this act. Within 60 days after the notice of the determination of the 
tax liability shall have been mailed by the assessor (not countng Sunday as the 


TAXATION OF INCOMES, ETC. 


49 


sixtieth day) the taxpayer may file a protest with said board, requesting a hear- 
mg: / rovided, that the grounds of the appeal must be stated in the request. 
I he board of personal tax appeals shall after affording a hearing to the taxpayer 
ascertain the correct tax, whether greater or less than the amount determined by 
the assessor. If the taxpayer is aggrieved by the decision of said board, he may 
thereafter appeal to the Supreme Court ofthe District of Columbia. 


21. Adjustment of Credit for Intangible Taxes 

Section G of the act of Congress approved February 18, 1929 (45 
Stat. 1227), relating to personal tax requires that beginning July 1, 
1930, returns on all personal property other than automobiles shall 
be made in the month of duly in the fiscal year in which the assessment 
is levied, and the value of such property shall be made as of the 
first of that month. The proposed income tax law in section 8 stipu¬ 
lates that the new tax shall be first levied, collected, and paid in the 
year 1933 upon the taxable income of the calendar year 1932. 

Section 24 of the bill, which deals with the repeal of the intangible 
law and substitution of the new income tax law therefor, reads as 
follows: 

The amendments made to section 6 of the District of Columbia appropriation 
act for the fiscal year ending* June 30, 1903, approved June 1, 1902, by section 
11 of the District of Columbia appropriation act for the fiscal year ending June 30, 
1917, approved September 1, 1916, and by section 9 of the District of Columbia 
appropriation act for the fiscal year ending June 30, 1918, approved March 3, 
1917, and all other provisions of law relating to the taxation of intangible personal 
property in the District of Columbia are hereby repealed as of January 1, 1933. 
Amount paid in respect to the tax on intangible personal property for the period 
between July 1, 1932, and January 1, 1933, shall be credited against the income tax 
payable in 1933 and any excess shall be refunded. (Italics supplied.) 

Under this latter section the existing law relating to the taxation of 
personal property would be repealed as of January 1, 1933, and 
amounts paid as intangible personal property tax for the period 
between July 1, 1932 and January 1, 1933, would be credited against 
income tax payments in 1933. Should the bill be enacted prior to 
July 1, 1932 (the date from which assessments run for the fiscal year 
1933), intangible personal property would be taxed during the transi¬ 
tion from the present intangible tax law to the new income tax law 
as follows: Returns on intangibles for the half year would be due during 
July 1932, and one-half of the tax thereon would be payable the 
following September. Six months later—in March, 1933—income 
tax returns would be filed on incomes earned during the calendar 
year 1932. On these returns, persons who paid intangible taxes for 
the period July 1, 1932, to January 1, 1933, would be credited for such 
payments. This would mean that for the first year of the income tax 
law those persons who paid intangible tax applicable to and due for the 
preceding six months would be relieved of their income tax liability 
for 1933 to the extent that they paid intangible tax for a prior and 
different tax revenue period. The effect of this credit would be to 
permit this intangible property to go untaxed during the six months' 
period July 1 to December 31, 1932. This allowance would probably 
reduce the revenues of the District of Columbia for the fiscal year 1933 
approximately $1,000,000. The bureau believes that no tax credit 
should be allowed for intangible taxes due and payable for any period 
prior to the effective date of the new income tax law, and that in¬ 
tangible tax for the fiscal year July 1, 1932 to June 30, 1933, should be 


50 


TAXATION OF INCOMES, ETC, 


0 038 511 583 0 


one-half of the annual rate for a full year, to cover the period from 
July 1 to December 31, 1932. The following change is therefore 

suggested: 

Sec. 24. The amendments made to section 6 of the District of Columbia 
appropriation act for the fiscal year ending June 30, 1903, approved June 1, 1902, 
bv section 11 of the District of Columbia appropriation act for the hscal year 
ending June 30, 1917, approved September 1, 1916, and by section 9 of the 
District of Columbia appropriation act for the fiscal year ending June 30, 1913, 
approved March 3, 1917, and all other provisions of law relating to the taxation 
of intangible personal property in the District of Columbia are hereby repealed 
as of January 1, 1933. The assessment made under this section on intangible 
personal property shall be at one-half the annual rate to cover only the period 
from July 1 to December 31, 1932. Such tax shall be payable in its entirety 
during the month of September, 1932, collected by the collector of taxes and 
covered into the United States Treasury for credit to the District of Columbia in 
the manner as now provided by law. 
















